SEOUL, South Korea – The Obama administration suffered a major setback Thursday with the announcement that it couldn’t break the impasse over a long-anticipated U.S.-South Korean trade accord, continuing a rocky start for the U.S. at a conference of top world economies in Seoul.
The news followed more harsh criticism by China and Germany, the world’s two biggest exporting powers, of the recent U.S. Federal Reserve move to buy $600 billion in Treasury bonds, depressing the value of the dollar.
American officials had hoped to unveil a deal on the free trade agreement at the start of meetings between leaders of the Group of 20 major and developing economies. Instead, President Barack Obama and South Korean President Lee Myung-bak told reporters after a working lunch that negotiators need more time on the pact, which would boost trade between the two countries.
While both leaders cast the development as a temporary glitch, it was clearly a disappointment for an Obama team that entered the G-20 looking to correct trade imbalances between the large U.S. deficit and surpluses in nations such as Germany and China.
Lee said the two countries had to “iron out the technical issues” of the agreement, originally signed in 2007 but never ratified in Congress.
That wasn’t the only setback. The U.S. also has trimmed back its goal for major economic powers to cap their deficits or surpluses at specific levels, trying instead for consensus about the general principle of caps. Both Obama and Treasury Secretary Timothy Geithner are basing their case on the assertion that the rest of the world, particularly large export nations, needs the U.S. economy and its buying power to rebound.
“I don’t think you’ll get any objection to their belief that if the U.S. isn’t growing, that’s not good,” Obama told reporters.
Obama said the communique to be issued at the end of meetings Friday will be a “broad-based agreement from all countries – including Germany – that we need to ensure balanced and sustainable growth. And it is my expectation that the communique will begin to put in place mechanisms that help us track and encourage such balanced and sustainable growth.”
Disquiet over the Fed’s decision this month to buy Treasury bonds through next year, a move that could drive down the value of the dollar, has overshadowed U.S. efforts to reach agreement on broader issues at the G-20, which began Thursday. Economic officials from several leading economies have complained that the move, called quantitative easing, will give U.S. exporters unfair advantage and encourage speculators to send enormous amounts of cash into emerging economies, thereby risking investment bubbles.
Asked if he’s concerned about “hot” money coming into South Korea, Lee joked awkwardly that, “I think that kind of question should be asked to me when President Obama is not standing right next to me.”
After telling reporters that he wasn’t worried about an influx of money destabilizing his country, Lee added that “we hope that it will be a positive contribution to the recovery and the revival of the U.S. economy.”