G20 leaders meet amid trade, stimulus tension

Japan unveiled a larger-than-expected current account surplus Tuesday, underscoring the challenges facing G20 leaders who aremeeting in Seoul on Thursday and Friday to resolve differences over global trade imbalances.

Japanese national net income in September grew by 24 per cent to $24.25 billion US from the month earlier.

Japan's data came one day before most economists expect China to report that its exports surpassed imports by $25 billion US in October, the second-largest margin this year.

Such a sizeable trade surplus would only increase calls by the U.S. for China to adopt a more flexible exchange rate for the yuan.

The U.S. itself has added to the tension with the Federal Reserve's move to flood the sluggish American economy with cash by buying $600 billion in Treasury bonds over the next eight months.

The aim is to lower interest rates to spur growth and cut the high unemployment rate.

In Beijing, vice finance minister Zhu Guangyao said Monday that China would have a "candid" exchange of views with the U.S. and called the bond-buying plan "a shock to the stability of global financial markets."

German Finance Minister Wolfgang Schaeuble said he didn't think the plan would work and that the Americans are "creating extra problems for the world."

Guido Mantega, Brazil's finance minister, said the move would devalue the U.S. dollar and hurt Brazil and other exporters.

During an official trip to India, U.S. President Barack Obama backed the Fed's decision and emphasized America's interest in using the G20 to better balance the global financial system, taking a veiled hit at China's resistance to letting its currency rise.

"We can't continue to sustain a situation in which some countries are maintaining massive surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern," he told reporters on Monday.

Trade imbalances no longer tenable

At the heart of the discussions is the recognition that trade imbalances that have grown over 20 years are increasingly no longer tenable.

The U.S. has been buying exports from the rest of the world and running huge trade deficits while countries such as China, Germany and Japan accumulate vast surpluses.

"The present world economy is unbalanced," Paul Volcker, a top economic adviser to Obama and a former Fed chief, said in Seoul last week.

"It's unbalanced in a way that can't persist if we are going to have a thriving global economy."

But the problem is that countries must voluntarily adopt measures that will lower their standards of living. Exporting nations will do with less income and importing countries must do with fewer of the low-cost products they have come to expect.

"The problem is that we let the imbalances grow so large that there's no easy fix now," said Bill Belchere, chief global economist for Mirae Asset Securities in Hong Kong. "The adjustments necessary are politically palatable to no one."