The Business Times Singapore
December 1, 2010 Wednesday
Why US can't churn out a rerun of Plaza Accord;
Unlike in 1985, the perception now is that the US is driven by its own economic self-interest
Leon Hadar, Washington Correspondent
AT A time when the need to fix the global financial imbalances between the United States and China dominates the policy agenda, veteran diplomats and economic officials are recalling with nostalgia a similar effort to settle the economic tensions between the US and Japan in the 1980s.
Then, as now, Washington was preoccupied with mounting budget and trade deficits, and many US officials and lawmakers were worried over competition from a rising East Asian economic power - Japan - which they accused of pursuing mercantilist trade policies.
The conventional wisdom then, as now, was that reducing the US deficits and bringing savings and investment more into balance globally would require the devaluation of the US dollar against the Japanese yen.
That in turn would help reduce the price of US exports and increase that of imports. Export growth would be fostered and the trade deficit would shrink.
To make a long story short, then-US trade secretary James Baker invited his counterparts from Japan, West Germany, France and the UK to the Plaza Hotel in New York where, on Sept 22, 1995, they agreed to engineer a global devaluation of the US dollar against the Japanese yen (and the German mark).
Hence, the current daydreams in Washington about a Plaza Accord II involving the G-20 governments, under which China will agree to revalue the yuan against the US dollar (and other currencies).
Now, as then, such a plan is framed not only as part of an effort to increase US exports but also as an element in a global strategy to bring savings and investment more into balance.
But as Clyde Prestowitz, a former US trade negotiator in Asia and the founder of the Washington-based Economic Strategy Institute, points out in his new book, The Betrayal of American Prosperity (New York: Free Press), the 1985 currency accord had mixed results.
Click Here to read the entire article at the Business Times Singapore (subscription required).