American prestige took a bit of beating over the weekend as the swift feet and hard heads of the U.S. soccer team proved not enough to pull off a “U-S-A/U-S-A” miracle at the World Cup in South Africa. And certainly not much of substance emerged from the meetings of the G-8 and G-20, groupings of the world’s most powerful economies and assorted hangers-on that convened in Canada.
That’s in no small part because the Obama administration has abdicated America’s historic post-World War II economic leadership role as it pursues what the rest of the world sees as a misguided economic policy.
Washington is, of course, too crisis-ridden to take new international economic initiatives — or, in fact, to follow up on old ones. The administration’s strategy, which aims to produce recovery through pump-priming and government-subsidized alternative energy, gets short shrift from its Western partners and Japan. They want to set their budgets in order. Add to that the failure of President Obama’s preconference letter to Beijing, again trying to wheedle China into ending its currency manipulation. The administration’s pleading — backed by a protectionist revolt among congressional Democrats — met with confused official and semiofficial signals from across the Pacific, but in the end, with pure stonewalling. Nor can America’s allies ignore Washington’s refusal to waive the Jones Act, purportedly protecting maritime labor and the desiccated U.S. ship industry, and welcome European skimmers and other help in the BP spill.
On the outer fringes of the world economy, Beijing reflects leadership and policy conflicts as confused as those in Washington. The Chinese first “vowed” (according to fawning media accounts) to permit its wildly undervalued currency to rise. But then after several days trading, it became obvious Beijing would not — and probably could not — take a disastrous short-term route to help rebalance the world’s currencies. China’s latest announcement of reduced export subsidies is only the reflection of growing inventories and saturated foreign markets for its goods.
Meanwhile, longer-term speculation on an eventual massive Chinese re-evaluation grows — evidenced by China’s real estate bubble and its casino stock market. Government infrastructure projects — enough for the next century — had been absorbing most of the “stimulus,” but have now reached their limits. All of these problems are intensified by all-pervasive corruption. (Beijing claims more than $14 billion in misappropriated public funds was recovered from some 800 officials in 2009 alone.)
Furthermore, as Mr. Obama presses an increasingly reluctant Congress to pursue a policy that even Lord Keynes would never have condoned (despite the Greek chorus invoking his name), Europe’s sober citizen, Germany, declines to follow suit. Berlin will not dance with a partner carried away on the lure of unlimited expenditures for the public sector.
But Germany itself faces a dilemma: Its export-driven economy has depended on pushing out goods in exchange for euros — euros that its customers, it turns out, had not actually earned. Greece is only the first of several euro currency economies that will likely come a cropper with its huge debt obligations.
Even if Chancellor Angela Merkel were to agree to pick up the burden, German taxpayers would not. And the chancellor already has her hands full with a complicated political crisis over electing a new president. That’s why the Chinese are said to be worried more about the rapidly deteriorating euro than about their vast hoard of dollars.
The only bright spot is in Britain, where new Prime Minister David Cameron is acting like a proper Scotsman taking a meat cleaver to public expenditures. Throwing off suspicions he was “conservative lite” or the English equivalent of a Rockefeller Republican, Mr. Cameron has cut public expenditure 25 percent across the board. But will his Liberal Democrat coalition partners sweat it out long enough for the anticipated long-term results to come home?
With each passing week, world economic problems become more acute. The latest statistics show the bulk of recent international borrowing has been to prop up the euro, not only to fund the Greek bailout but in anticipation of similar credit problems along the whole outer ring of the European Union. In Asia, Beijing’s East Asian partners depend on Chinese assembly operations using slave labor and increasing quantities of imported energy to cling to their export markets. It’s no wonder China has been hit by an unprecedented wave of “illegal” strikes that Beijing leadership has tried to ignore.
Japan, South Korea and Taiwan, like China, are all economies crucially dependent on exports. For differing reasons, none of yesterday’s vaunted Asian tigers are capable of quickly making the painful and complex changeover all have promised: To expand their domestic markets reducing reliance on exports to the West.
With each passing day, however, it becomes more clear that recovery in the United States and Europe is going to take a lot of time — and, indeed, the danger of the industrial economies slipping back into recession is ever present.
• Sol Sanders, veteran foreign correspondent and analyst, writes weekly on the convergence of international politics, business and economics. He can be reached at firstname.lastname@example.org.
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