Growing tensions over trade agendas at APEC summit

REUTERS - U.S. President Barack Obama and Chinese President Hu Jintao presented duelling trade agendas at a Pacific summit on Saturday that underscored growing tensions between the world’s two biggest economies.

Hu and Obama laid out competing visions of world trade in back-to-back speeches in Honolulu, and Obama then warned Hu in private that Americans were growing increasingly frustrated over what they see as unfair Chinese trade and currency practices.

Taking China to task with some of his sharpest language yet, Obama used an address to CEOs at the Asia-Pacific Economic Cooperation (APEC) summit to threaten punitive economic steps unless it started “playing by the rules”, as he sought to reassert U.S. influence in a region vital to America’s interests.

Earlier, Hu insisted on more clout for China as an emerging global power. He also made clear Beijing prefers to work through existing global trade architecture rather than allow itself to be subject to U.S.-led efforts to pry open Asia-Pacific markets.

When the two leaders appeared together before reporters as they started face-to-face talks, both sought to play down differences that have tested U.S.-China ties, stressing instead the need for cooperation to tackle global challenges.

But behind closed doors, Obama took U.S. complaints to a new level. It was unclear whether it was a serious effort to get Beijing to change its ways or, at least in part, political posturing aimed at U.S. voters who will decide whether to give him a second term.

Obama faces a tough 2012 re-election battle, in which Republican opponents accuse him of not being tough enough on China.

Obama told Hu the American people and U.S. businesses were “growing increasingly impatient and frustrated with the pace of change” in the U.S.-China economic relationship, senior White House aide Michael Froman told reporters.

Even as Obama used his meeting with executives to highlight U.S. concerns about a rising China, he asserted the United States was partly to blame for having lost ground and said his administration was working to change that.

“We’ve been a little bit lazy, I think, over the last couple of decades,” Obama said. “We’ve kind of taken for granted—well, people will want to come here—and we aren’t out there hungry, selling America and trying to attract new business into America,” Obama said.

Hosting the APEC summit in his native Hawaii, Obama said earlier the “broad outlines” of a deal had been reached on the Trans-Pacific Partnership, a regional free trade pact being negotiated by the United States and eight other countries.

It was hailed by U.S. officials as Obama’s signature achievement of the summit and a possible template for an eventual APEC-wide free trade zone. APEC’s 21 members make up the world’s most dynamic region and account for more than half of global economic output.

Obama sees increased trade opportunities as an engine for job creation at home that could help him through a troubled 2012 re-election bid with the U.S. economy still struggling.

But Beijing remains wary of the evolving trade pact that Washington is seeking with some of China’s neighbours. It is widely seen as part of a U.S. drive to provide a counterweight to China around the Pacific Rim.

Shadow crisis

With Europe’s debt crisis sending shock waves around the globe, this year’s APEC meeting was also emerging as a forum to push the euro zone to sort out its problems and for APEC members to strengthen defences against the fallout.

Fostering free trade is one of the few steps leaders can take to spur global growth when fiscal and monetary measures are virtually exhausted in many developed countries. But new trade deals usually take years to yield significant benefits.

While insisting the United States was “rooting for China to grow”, Obama urged Beijing to do more to allow its currency to appreciate, create a level playing field on trade and prevent theft of U.S. intellectual property. Obama was “very direct” in conveying that in talks with Hu, the White House said.

“The bottom line is that the United States can’t be expected to stand by if there’s not the kind of reciprocity in our trade relations and our economic relationships,” Obama said. “Where we see rules being broken, we’ll speak out and in some cases we’ll take action.”

Hu was quoted by Chinanews.com in Beijing as saying a big appreciation in the yuan against the dollar would not help U.S. trade and unemployment problems.

“The trade deficit and unemployment problems are not caused by the yuan exchange rate. Even a major appreciation of the yuan would not resolve the problems facing the United States,” Hu said in comments echoed by China’s foreign ministry.

Limited leverage

Obama has been under pressure, especially from Republican rivals, for a tougher line on China as he seeks re-election. But U.S. leverage is limited, not least because Beijing is America’s largest foreign creditor.

Speaking before Obama in Hawaii, Hu sought to soothe the concerns of foreign businesses over market access in China. He repeated China’s commitment to reform and opening up its economy but offered little new to address complaints that American business cannot compete fairly.

At the same time, he insisted China be given what it sees as its rightful place in world affairs.

“The new mechanism for global economic governance should reflect the changes in the world economic landscape,” Hu told executives. “It should observe the principle of mutual respect and collective decision-making and increase the representation and voice of emerging markets and developing countries.”

China has been reluctant to sign trade deals that would subject it to U.S-led efforts to open its economy further to foreign players because that would put competitive pressure on its state-owned enterprises.

Hu told the business leaders he favours pursuing more open trade through bodies such as the World Trade Organization, saying “we should uphold the multilateral trading regime and deepen regional integration”.

With Europe edging towards a recession, fast-growing Asia—led by China—is vital to sustaining global economic growth.