The G20 Communique, following Friday's conference in Pittsburgh, urged "adequate and balanced global demand"; in other words, that China start buying foreign products, instead of functioning as the black hole of international trade into which the world's demand disappears.
Bloomberg reports China's negative response:
China’s President Hu told the G20 yesterday that “the issue of global economic imbalances has drawn close attention from the international community.” The “root cause is the yawning development gap between North and South,” he said, according to an English translation of his text, referring to developed and poorer nations.
Why should China change? Their economy is growing rapidly while the economies of their rivals (President Hu's “North”) stagnate. Their policy is to stimulate domestic demand for Chinese-made products only, while stealing market share in foreign markets through export subsidies.
They have so mastered the art of protectionism that, according to the World Bank's June 2009 Quarterly Update, their imports are expected to shrink this year, despite their 10% growth in consumption and their stockpiling of commodities.
There is a simple way to get China to change, recommended by my father, son and I in our 2008 book Trading Away Our Future. We would let the Chinese government know that the United States will balance trade through auctioned import certificates if they don't gradually balance trade on their own. The Chinese government could easily end export subsidies, let the yuan rise, and take down their tariff and non-tariff barriers to imports.
Such action by the United States would be sanctioned by WTO rules which state,
(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.
The resulting policy would jumpstart our economic growth through increased exports and increased investment in American manufacturing.
So far, the Obama administration has unrealistically relied upon diplomacy and wishful thinking. An old nursery rhyme states, "If wishes were horses, then beggars would ride."
Disclosure: No positions
