Obama Presses Hu on Yuan’s Value as Trade Imbalances Divide G-20

President Barack Obama pressed his Chinese counterpart Hu Jintao on allowing faster currency appreciation to help narrow trade imbalances that threaten to trigger protectionism and imperil the global economic recovery.

“The bulk of the meeting” dealt with exchange rates, White House press secretary Robert Gibbs told reporters in Seoul after the two leaders met for 80 minutes at the Grand Hyatt Hotel. Hu reiterated his commitment to move forward on the issue and noted “the movement in the currency” thus far, said Lael Brainard, the Treasury Department’s undersecretary for international affairs.

Obama and Hu are pivotal to efforts aimed at lessening global disagreements over how to spur economic growth and better balance trade between large exporters such as China, and net importers like the U.S. Their seventh face-to-face meeting underscored the importance of ties between two nations at opposite ends of the debate on trade imbalances.

“As two of the world’s leading economies we have a special obligation to deal with ensuring strong, balanced and sustained growth,” Obama told reporters before the meeting. Hu expressed confidence the Group of 20 summit the two leaders are also attending in Seoul will produce a “positive outcome.”

China’s record $28 billion trade surplus with the U.S. in August heightened criticism its government maintains an unfair cap on yuan appreciation to the detriment of U.S. businesses. Obama, who has pledged to double exports within five years, has sought to broaden the currency debate by linking it to a worldwide effort to rein in current-account imbalances.

Finesse the Problem

“The most important thing is whether or not the Chinese are going to support this idea,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. “It wouldn’t solve the currency problem but it’s a way to kind of finesse it.”

China, along with Germany, opposed a suggestion last month by U.S. Treasury Secretary Timothy F. Geithner that the G-20 consider targets for reining in excessive trade imbalances. To meet the targets, exporting countries like China would likely have to let the value of their currencies rise, making their exports more expensive.

Obama and Hu also discussed the need for nations like China to press North Korea to show a greater sincerity in talks to dismantle its nuclear weapons program, said Jeff Bader, senior director for Asian Affairs at the National Security Council. The two leaders also discussed sanctions against Iran over its nuclear ambitions, Bader said.

Obama in Asia

The G-20 summit comes amid a 10-day trip to Asia in which Obama has emphasized how the region’s role in the global economy benefits the U.S. He already has stopped in India and Indonesia and tomorrow travels to Yokohama, Japan, for a meeting of the Asia-Pacific Economic Cooperation forum. Earlier today, he met with South Korean President Lee Myung Bak and said the two countries hope to forge a free-trade agreement within weeks.

Obama has also found himself defending this month’s decision by the U.S. Federal Reserve to buy $600 billion of Treasuries to stimulate the economy.

China’s Vice Finance Minister Wang Jun said Nov. 6 that the policy could contribute “tremendously” to global growth. Two days later, a fellow vice minister said the Fed policy might destabilize emerging markets by encouraging hot-money capital flows.

Trade Surpluses

China, the U.S.’s second-largest trading partner, after Canada, had a trade surplus in excess of $170 billion with the U.S. in the 12 months through August, according to the American Department of Commerce. China yesterday posted a larger-than- forecast $27.1 billion trade surplus in October as exports rose 23 percent from a year earlier.

Obama is facing demands from U.S. lawmakers to put more pressure on China over its currency. The yuan today rose to its highest against the dollar since 1993 as the People’s Bank of China continued to ratchet up the currency’s daily trading range ahead of the G-20 summit, which began today.

China, which has curbed the yuan’s rise to about 3 percent since a two-year dollar peg was removed in June, has argued that letting its currency rise more quickly could cause social and economic disruption.

A stronger Chinese currency would aid Obama’s goal of doubling U.S. exports to about $3.1 trillion by 2015 as a way to combat an unemployment rate has remained at 9.5 percent or higher for more than a year.