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Take the global imbalance seriously

By Zhu Qiwen (China Daily)
Updated: 2009-09-21 07:55

If global leaders are to make the coming G20 summit in Pittsburgh an effective response to the global financial and economic crisis triggered by the collapse of Lehman Brothers a year ago, they should whole-heartedly take to the table the issue of balancing the world economy.

Though the strong rebound in China and emerging "green shoots" in major developed countries have apparently prevented the world economy from falling off the brink for the moment, policymakers cannot afford to just tinker at the edges of an outdated global financial and economic system. Without addressing global imbalances immediately, the current recovery will be neither solid nor sustainable.

However, media reports show that Western countries are still using the issue of global imbalance merely as a red herring. Worse, by paying only lip service to their promise of opposing protectionism, they are actually discouraging necessary domestic industrial restructuring as part of the global efforts to restore balance to the world economy.

It was reported last week that the United States and European nations tried to hammer out a framework for tackling global imbalances to be agreed upon in Pittsburgh.

At the first glance, that sounds good news for the world economy since coordinated efforts to reduce global imbalances will underpin the recovery from recession and ensure that the future pattern of global growth is more sustainable.

Yet, by interpreting global imbalances as "big gaps between savings and investment rates among countries, reflected in big current account surpluses and deficits", they revealed a lack of sincerity to fix the long-term problems in the global financial and economic system.

Clearly, some people in the West still consider a savings glut from surplus nations as the main culprit of the global crisis. But such self-justification goes against the grain of both trade history and the ongoing course of globalization.

As long as international trade had bridged economies from different parts of the globe many centuries ago, trade surpluses for some countries and trade deficits for some others have become the norm instead of a balanced current account for everyone. Historically speaking, it makes no sense to blame one country's trade surplus gained through fair competition, the conditions for fair competition being secured against great odds.

The ongoing globalization, characterized by unprecedented labor division and specification, has brought the world economy in recent years to a new phase that witnessed rapid accumulation of trade surpluses in some manufacturing and resource-rich countries, and a surge of current account deficits in consumer-centerd economies.

If world leaders recognize that globalization, as a whole, has increased and will continue to add to consumer welfare and productivity, they must then understand that the current global imbalances will be not reduced significantly before trade-deficit countries can adjust their own economic structures in line with the global demand to bring their current account in the black.

To be serious about global imbalances means that G20 leaders should agree on a realistic approach to cut rich countries' trade deficits.

Given the comparative advantages China enjoys, it is only natural that the country will continue to excel in trade of manufacturing goods no matter how well its domestic consumption is boosted. Hence, blaming China's trade surplus as a synonym, or even a symbol, of "global economic imbalances" will not help towards fixing the problem.

Instead, developed countries should help their high-tech and service sectors to seize the opportunity that China offers for pursuing greener growth and expanding domestic consumption. To that end, developed countries need to not only adjust their trade policies but also overhaul their financial systems.

Slapping protectionist duties on imports from China only hinders industrial restructuring in related countries to slow the pace of a global recovery.

G20 leaders must stand up to rising protectionism for tackling the global imbalance.