President warns protectionist exporters • Germany defies call to change outlook • America resumes Russia relations.
Barack Obama does not see eye to eye with Angela Merkel over exports Photo: PA
US President Barack Obama has issued a veiled warning to the export powers of Europe and Asia that they risk setting off a protectionist backlash unless they do more to restore global demand."If there is going to be new growth it can't just be the United States as the engine. Everybody is going to have to pick up the pace," he told a joint press conference with Gordon Brown before the G20 summit.
"Our goal is simply to make certain that each country, taking into account its differences in economic circumstances and political culture, is doing what is necessary to promote economic growth. The US will do its share but in some ways the world has become accustomed to the United States being a voracious consumer market, the engine that drives a lot of economic growth worldwide," he said."In the wake of this crisis, we have to take into account our own deficits. To the extent that all countries are participating, that strengthens arguments we make in our respective countries about the importance of world trade, the sense that this isn't a situation where each country is only exporting and never importing, but rather that there's a balance," he said.While the comments were couched in diplomatic language – and included praise for "significant packages" by the EU, Japan, and China – they reflect irritation in Washington that US fiscal stimulus is leaking out to "free rider" countries. The US budget deficit may reach 13.7pc of GDP this year.
The current US Congress is the most protectionist in half a century. It has already inserted a "Buy American" clause in Mr Obama's fiscal package. It is unclear how far Mr Obama will go – or can go – to restrain the populist mood.A 530-page report by the US Trade Representative this week reads like an indictment of half the world, with a long chapter on methods used by China to rig its internal market. China had $401bn (£278bn) surplus over the last year.But it is Germany that has emerged as the villain in this G20 drama because of its attacks on the "crass Keynesianism" of the Anglo-Saxon powers and its willingness to let German GDP contract at a brutal pace despite having ample firepower in reserve.Chancellor Angela Merkel has blamed the crisis on US "casino capitalism", ignoring the role of massive trade imbalances in generating the deeper economic turmoil. Germany has a surplus of $224bn, or 5.3pc of GDP.
She has given the impression that Germany hopes to carry on running export surpluses for ever as if nothing had happened. "The German economy is very reliant on exports; this is not something you can change in two years. It is not something we even want to change," she said.Asia has been quicker to join the stimulus coalition. Japan's premier Taro Aso is preparing a third fiscal package, allegedly worth $200bn over three years. China has pushed through stimulus of nearly $600bn.
Mr Aso said Japan had learned during its "lost decade" that pump-priming can prevent a downward spiral at key moments. "There are countries that understand the importance of fiscal mobilisation, and there are some other countries that do not, which is why I believe Germany has come up with their views," he said.Western Europe may have blundered by failing to offer Mr Obama more support for his agenda. The new president already views the region as an inhospitable place, judging by his book Dreams of My Father. Europeans have not done much to win him over.Mr Obama has instead hit the "reset button" in US relations with Russia, holding a one-on-one meeting on Wednesday with President Dmitry Medvedev.The likely outcome of this G20 will be a US strategic tilt away from Brussels and the Nato alliance.
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