Will the self-appointed custodians of the world economy even bother meeting in six months at the next scheduled global summit in France? What's next for the increasingly dysfunctional G20?
The huge fiscal divisions that were already in evidence at the G20 summit in Toronto have morphed into even bigger and more rancorous divisions on exchange rates at the recent Seoul summit. With America at China's throat about a record trade surplus and China at America's throat over the Federal Reserve Board's blatantly devaluationist policy of quantitative easing, little wonder nothing was accomplished.
More importantly, it likely marks the end of the great China-U.S. economic accord which defined the apex of globalization. That once virtuous and self-reinforcing circle of trade and capital flows, whereby Chinese savings invested in the Treasuries market effectively funded U.S. consumer demand for Chinese exports, is clearly in both countries' gun sights these days.
Gone at the Seoul summit is even any pretense of a coordinated policy approach to manage the global economy. Coordinating national economic policies may have once been easy when everybody's economy was mired in the deepest recession of the entire post-war era. But very disparate rates of economic recovery across the G20 have spun equally disparate policy responses from member countries.
And the more anemic the recovery, the more desperate the policy responses. Record fiscal stimulus and printing money has become the new orthodoxy in American economic policy even as most of its trading partners are reining in their fiscal deficits and hiking interest rates.
What's increasingly clear is that growth imbalances are going to increase, not decrease in the future and that the G20 is hardly going to be the forum for policy arbitration between countries. If you thought the growth gap between emerging market economies and the OECD ones was big before the recession, you can expect it to be a lot larger in the future in view of the craters of debt that the recession has left behind in the American and European economies.
With no remedies in sight, look for more trade friction in the future. U.S. Treasury Secretary Geithner's proposal to target countries' current account or trade balances is only the opening salvo to manage international trade. If the Fed's printing press doesn't devalue the greenback enough, there are always tariff walls that can be built.
If the discussions seem strained at the Seoul summit, consider the tone from the next one scheduled in France. At the rate things are going at G20 summits these days, the next one will be debating the resurrection of the Smoot Hawley Tariff.