Saturday, October 23, 2010
Nations Agree on Need to Shrink Trade Imbalance
The G-20 have met and agreed on the need to calm the exchange rate tension that has threatened to disrupt a global economic recovery. The tentative plan is to curve the surpluses and deficits that may create the next financial crisis. The US proposal was backed by South Korea, Britain, Canada, and Australia but met with resistance from Japan and Germany. China, a bog player in the debate given the currency balance between the US and China, did not pick a particular side. After a lengthy debate, the G-20 agreed to the goal of “reducing excessive imbalances” and called on the IMF to examine the causes of “persistently large imbalances.” The US, Canada, and Britain have trade deficits while Germany, China and Japan have surpluses.
Subscribe to:
Post Comments (Atom)
One way to reduce the excessive imbalances would be for the trade deficit nations to increase national savings so as to encourage investment and stimulate domestic growth and raise exports. Currently, for the US and its high unemployment, having such high imports in comparison to exports is a bad sign as it shows the potential to produce domestically (which would create more jobs) is not being given enough attention to.
ReplyDeleteIn Professor Macleod's speech on the financial crisis, she stated that in order to get out of the recession, our actions need to be based on the future, not just reactions to problems from the past. It seems like G-20 is working towards problems they feel could pose a problem in the future.
ReplyDeleteKeeping that in mind, the US should focus on increasing investment in research and development and encourage innovation. This will in fact be the foundation for future growth.
ReplyDelete