President Barack Obama has pleaded with world leaders to put aside their differences and work together for global economic recovery.
On the eve of the G20 summit, he said the US would play its part to create jobs and reduce global imbalances.
World leaders are gathering in South Korea for the two-day meeting.
There are fears the Seoul summit could descend into a row between the US and China about so-called “currency wars” and trade imbalances.
US critics
Washington has blamed global imbalances in part on Beijing’s alleged manipulation of its currency to help boost Chinese exports, which has led to Beijing amassing huge foreign reserves.
Others, however, say America’s economic policies, specifically creating new money to pursue quantitative easing (QE), could also be a form of currency manipulation for its own ends.
At a G20 press conference, Brazil’s finance minister Guido Mantega criticised the US central bank’s latest QE programme.
“The trouble with putting an extra $600bn into the US economy is that this money will not go into production, will not create jobs and neither will it boost domestic consumption.
“With more money in the market, investors will take advantage of higher interest rates in other places, put the money into these countries’ stock exchanges or invest in commodities, raising the prices and causing inflation in our countries,” Mr Mantega said.
Collective action
President Obama said that the US alone could not restore growth but accepted the US must change, adding: “When all nations do their part… we all benefit from higher growth.”
However, he defended America’s “decisive action to halt the fall in activity caused by the deepest crisis we have experienced in generations”.
And he again called on countries not to rely on exports to pull them out of their economic problems.
“We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing.
“Yet, no one country can achieve our joint objective of a strong, sustainable, and balanced recovery on its own.
“Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their down demand,” Mr Obama said.
Threat
Earlier UK Prime Minister David Cameron stepped into the fray with a warning that China should act to correct its trade imbalance.
In a speech at Peking University, he said that China’s export success was a potential threat to other economies.
China’s huge trade surplus is in part attributed to the weakness of the yuan, which helps the country’s exporters.
Last month, US Treasury Secretary Timothy Geithner proposed setting targets for countries to reduce current account gaps.
The proposal, however, seems to be on the back-burner after several countries, including Germany and Japan, suggested it was unworkable.
China had not commented, although in an interview on Wednesday President Hu Jintao said countries must “face their own problems”
‘Responsibilities’
Mr Cameron, who was leading a trade mission to the country, said he wanted “to make the positive case for the world to see China’s rise as an opportunity, not a threat”.
He said China can play a leading role in dealing with economic problems as the world emerges from recession.
But China’s increasing economic muscle has given it “responsibilities” both economically and politically, said the prime minister.
n an apparent reference to the low valuation of the yuan, Mr Cameron said: “The truth is that some countries with current account surpluses have been saving too much while others like mine with deficits have been saving too little.
“And the result has been a dangerous tidal wave of money going from one side of the globe to another.
“We need a more balanced pattern of global demand and supply, a more balanced pattern of global saving and investment.”
Critics, especially in the US, have called for tariffs on Chinese imports unless the yuan is allowed to appreciate.
It is feared that other countries will rush to allow currency devaluation to also make their exports more competitive.
Interference
China’s vice foreign minister Cui Tiankai rejected foreign interference in what Beijing regards as an internal matter.
“The recent [economic] crisis was certainly not caused by China’s currency,” he said in an interview.
Meanwhile in London, Mervyn King, the governor of the Bank of England, also called for co-operation, not confrontation, at the summit.
“I hope that at the G20… we will get a co-operative message rather than some of those that we have been getting in the last few days and weeks.”
He urged the G20 to agree to let current account imbalances unwind, rather than impose targets and policy instruments.
This, he said, was in the collective interest.
“Unless we recognise that… then we will face a situation where more and more countries will resort to policy instruments that in the end will be damaging to everyone. It is that serious.”
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