Saturday, November 13, 2010

"Economic power grabs slowly, like the tide..."

Arguing in November/December Foreign Policy that U.S. foreign policy must focus on using soft power to advance economic goals, Leslie Gelb issues a warning that could serve as postscript for this week's G-20 meeting. The passage also deploys a metaphor that has real conceptual force (my emphasis):
U.S. policymakers must also be patient. The weakest of nations today can resist and delay. Pressing prematurely for decisions--an unfortunate hallmark of U.S. style--results in failure, the prime enemy of power. Even when various domestic constituencies shout for quick action, Washington's leaders must learn to buy time in order to allow for U.S. power--and the power of U.S.-led coalitions--to take effect abroad. Patience is especially valuable in the economic arena, where there are far more plays than in the military and diplomatic realms. To corral all these players takes time. Military power can work quickly, like a storm; economic power grabs slowly, like the tide. It needs time to erode the shoreline, but it surely does nibble away.

To my mind, this is the very definition of the Obama administration's policy -- in its marshaling of the coalition for sanctions on Iran, as Gelb acknowledges, and also in its alternation of pressure and forbearance in urging China to let its currency appreciate. But Gelb complains in a concluding paragraph sideswipe:
President Barack Obama, in particular, has often struck just the right themes, only to let them fizzle in the din.
'Splain, Gelb. Perhaps he's thinking of the Israeli settlement debacle. Or a missed opportunity to cut back in Afghanistan, after Karzai rigged the election.

With regard to global trade rebalancing, however, it seems to me that Obama's postmortem on the G-20 meeting in Seoul captures precisely the dynamic Gelb describes above:   “Instead of hitting home runs, sometimes we’re going to hit singles. But they’re really important singles.”

Damage control, perhaps. But that's just the point. Pushback by China and other countries against Geithner's proposed numerical targets for individual countries' trade imbalances, fueled (or covered) by fierce protest against the Fed's proposed quantitative easing, led to rejection of the hard caps.  But  the commitment to to rebalance, while deferred, was affirmed:
The G-20 leaders largely endorsed an approach to imbalances that finance ministers, including Treasury Secretary Timothy F. Geithner, hammered out last month at a meeting in Gyeongju, South Korea, but added a timetable.

The finance ministers, along with the heads of central banks like the Federal Reserve, are to agree by mid-2011 on “indicative guidelines” for identifying big, persistent imbalances, and Mr. Hu said China would host meetings to establish those guidelines.

The International Monetary Fund will then conduct an analysis of the “root causes” of the imbalances and the damage that they cause, by the next G-20 leaders’ meeting, to be hosted by France late next year. The goal, the leaders said, was to “facilitate timely identification of large imbalances that require preventive and corrective actions to be taken.” 

The G-20 maintained its viability, bought time, and turned for decision support to the IMF, thereby strengthening that key multilateral institution, at the same time ratifying changes in the IMF's governance to include more representation from emerging countries.  The tide of international financial coordination inched forward.

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