G20 leaders on Friday refused to endorse a US push to get China to let its currency rise, keeping alive a dispute that has raised the spectre of a global trade war. At the end of their two-day summit, the leaders of the Group of 20 rich and developing economies including US President Barack Obama and China's Hu Jintao issued a watered-down statement that only said they agreed to refrain from "competitive devaluation" of currencies.
Such a statement is of little consequence since countries usually only devalue their currencies in extreme situations like a severe financial crisis. The real dispute is over Washington's allegations that Beijing resorts to "competitive undervaluation" artificially keeping its currency, the yuan, weak to gain a trade advantage. However, the US position itself has been undermined by its own recent policy of printing money to boost a sluggish economy, which is weakening the dollar. The joint statement avoided the words "competitive undervaluation", which was a reference to China's currency policy that had been inserted into a draft of the statement by officials during pre-summit negotiations.
The dispute over whether China and the United States are manipulating their currencies is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s.
The biggest fear is that trade barriers will send the global economy back into recession. A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade. Leaders agreed to come up with "indicative guidelines" to tackle trade imbalances affecting world growth and pledged to move toward more market-determined exchange rate systems and enhance exchange rate flexibility. Although directed against China, the statement leaves significant room for interpretation since the language is vague and does not impose any timeframe for enforcing a market-determined exchange rate.
The US says a higher-valued yuan would make Chinese exports costlier abroad and make US imports cheaper for the Chinese to buy. It would shrink the US trade deficit with China, which is on track this year to match its 2008 record of $268 billion, and encourage Chinese companies to sell more to their own consumers rather than rely so much on the US and others to buy low-priced Chinese goods. China and other countries are irate over the Federal Reserve's plans to pump $600bn (