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U.s. Proposes Benchmark For Limiting Trade Imbalances

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The Obama administration on Friday urged the world’s biggest economies to set a numerical limit on their trade imbalances, in a major new effort to broker an international consensus on how to handle festering exchange-rate tensions.

Officials from Britain, Canada and Australia quickly expressed support for the idea, and as a late-night Friday negotiating session in South Korea continued into Saturday morning, France and Japan came on board. But Germany, Europe’s largest exporter, expressed resistance, and China, whose currency battle with the United States has threatened to derail the process of global economic cooperation, has not formally weighed in.

The range of responses illustrated the challenge in securing support among the Group of 20 economic powers before a meeting of their leaders next month in Seoul, South Korea.

Treasury Secretary Timothy F. Geithner offered the administration’s proposal at a two-day meeting of G-20 finance ministers and central bankers in Gyeongju, South Korea. Mr. Geithner called for the biggest industrialized economies to keep their current-account balance — whether a surplus or a deficit — below 4 percent of gross domestic product.

A country’s current-account balance is the combination of balances of trade in goods, services, income and net unilateral transfers like foreign aid. The United States, Canada and Britain have current-account deficits, while China, Germany and Japan have surpluses. China’s current-account surplus is currently 4.7 percent, and the United States’s deficit is 3.2 percent. Of the G-20 countries, Germany (6.1 percent) and Russia (4.7 percent) also have sizable surpluses.

The proposal in essence tries to set a numerical target to achieve the broad but vague mantra of “strong, sustainable and balanced growth,” to which the G-20 countries agreed in September 2009 in their meeting in Pittsburgh.

Deficit countries should increase national savings, Mr. Geithner wrote in a letter outlining the proposal, by stabilizing their public indebtedness over the medium term and raising exports, while surplus countries “should undertake structural, fiscal and exchange-rate policies” to boost domestic demand. “Since our current-account balances depend on our own policy choices as well as on the policies pursued by other G-20 countries, these commitments require a cooperative effort,” he wrote.

The German economy minister, Rainer Brüderle, told reporters that the proposal could be viewed as a reversion to “planned economy thinking.” Germany has long been an export giant.

Even if the countries agreed to the 4 percent target, it would not be compulsory. The G-20 operates through shared interests and peer pressure, and its agreements do not have the force of law.

The United States has been pressing the International Monetary Fund to play a more assertive role in helping evaluate whether the G-20 countries are fulfilling their commitments. The fund is responsible for monitoring countries’ fiscal and monetary policies, and for discouraging them from manipulating their exchange rates. And although it cannot compel its members to act, its economic findings carry great weight.

Is this anything like Keynes was proposing after the war that the US rejected?

Still horse and bolted spring to mind.

I'm sure they aren't panicking yet.

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  • 415 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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