Obama should address economic uncertainties

By Zhu Qiwen (China Daily)
Updated: 2009-11-16 08:03

At a time when the global economy has just seemingly managed to emerge from the worst recession in decades, it is all too natural for people to have high expectations of the ongoing visit to China by US President Barack Obama.

Though prompt and unprecedented joint efforts since the end of last year have so far allowed the world to avert economic catastrophe, it is far from certain if the international community has done enough to secure a lasting and balanced global recovery.

Since China, the biggest developing economy, is shortly expected to overtake Japan as Asia's largest economy and emerge second only to the United States, better ties that enable the two countries to work together in helping engineer a powerful global response to the common challenges that mankind faces have become more important than ever.

However, before rejoicing that the worst is over, Chinese and US leaders should seize the opportunity to clarify some uncertainties that, if not properly addressed, might still derail the global recovery.

One question that Obama cannot ignore is international worries about the size of America's budget deficit.

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As the largest foreign holder of US government debt, China has ample reasons to be concerned whether Washington will keep its deficit at an appropriate level to ensure basic stability in the US dollar. It is estimated that China has invested an estimated 70 percent of its more than $2 trillion stockpile of foreign exchange reserves, the world's largest, in dollar assets. With Chinese holdings of US assets constituting such an important part of the country's national wealth, Chinese leaders, of course, worry much about the safety, liquidity and value of the reserves.

It is generally agreed that a stable US dollar is conducive to the stability and recovery of the global economy. So, to defend the long-term value of the US dollar, the US president needs to send a clear and credible signal to the world that his country, instead of updating the national debt clock in additional digits, will set a binding limit on the rise of budget deficit as early as possible. In short, the United States should not choose to spend its way out of the crisis.

A second task for the US President is to elaborate further on his stance on free trade.

In a speech in Japan last week, Obama said that the US is working toward an ambitious and balanced Doha agreement and shifting its economy to export-led growth. Both suggestions are pleasing news to advocates of free trade only if they can square with what the US government is doing in international trade.

While the long-term effect of quantitative monetary easing in arresting the global economic recession remains a subject of debate, international efforts to fight against protectionism in this time of crisis, a bitter lesson learned from the 1930s Great Depression, will prove more worthwhile than thought in preventing a global meltdown.

Yet, as the world is on the brink of economic recovery and must do more to ensure that it can be sustained, the US government has slapped tariffs on Chinese tire imports and, only last week, steel pipes, to sour trade relations between the two very important economies.

If the US really wants to complete the Doha round of trade talks - which has already fallen far behind schedule - "in a timely fashion", Obama has to come up with more specific proposals while explaining how his government will work to make sure that the US' export-led growth does not come at the expense of other countries.

The last, but not least important, problem for the US president is how he will prove his country is no longer a drag on, but a boost to, global efforts to combat climate change.

Obama is definitely correct to reject illusions that there would be easy success in Copenhagen. Such a pragmatic view is needed but is not enough. The US' poor record in fighting climate change only makes such pragmatism look like an excuse to shirk responsibility. It is true that the US has taken more steps to combat climate change very recently than some years ago. But that is still a far cry from meeting its responsibility as a leading industrialized emitter.

Answers to these questions will largely define the nature of the current global recovery in the long run. The US president can do the world economy a big favor by at least reducing some of those uncertainties.

E-mail: zhuqiwen@chinadaily.com.cn

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