Anyone wondering what President Obama will face when he arrives in South Korea on Wednesday for a global financial summit meeting need look no further than an announcement by China’s leading state-endorsed rating agency, which downgraded the United States’ credit rating on Tuesday — and provocatively questioned American leadership of the global economy.
The agency cited the Federal Reserve’s decision to pump more money into the United States economy and warned of Washington’s “deteriorating debt repayment capability” and “the serious defects in the United States economic development and management model,” which it predicted would lead to “fundamentally lowering the national solvency.”
In the rest of the world, the United States is still the strongest of credit risks, and the Chinese downgrade is not expected to have much real impact. Nonetheless, the sharply worded attack from the country that is buying billions of dollars in American debt each month was just the latest rhetorical assault on the United States, as officials from China to Germany to Brazil suggest that Washington’s addiction to debt has greatly diminished its credibility.
But those critics, mostly countries that fear that recent American policy will devalue the dollar and undercut their competitiveness, do not appear poised to offer an alternative to an economic order that has been led by the United States since the end of World War II, or to the role the dollar has played for decades as the de facto world gold standard.
The Chinese, who have protested that the Federal Reserve is trying to unilaterally manipulate the dollar for the purpose of creating jobs at home, have been accused of doing exactly that for years — the root of many of the world’s economic tensions today, in the eyes of Mr. Obama and his economic aides.
Germany’s blunt-speaking finance minister also accused the United States of Chinese-like currency manipulation. But Germany is one of the few competitive economies in the troubled euro zone, which includes countries like Ireland, Greece and Portugal, that are fighting to stave off national bankruptcy. The euro is hardly poised to become the global alternative to the dollar that many once envisioned.
Even if there is no immediate rival to the United States as a monetary power, American officials acknowledge that Mr. Obama is going to have a far more difficult time winning any kind of consensus strategy out of the Group of 20 than he did during the first such meeting of his presidency, in London in 2009.
“The world is more divided today than it was in London because nations not facing the prospect of a depression have that luxury,” said Lawrence H. Summers, who leaves the White House next month after two years as the head of the National Economic Council, and as Mr. Obama’s top economic adviser. “Part of a return to normalcy is that nations more strongly and disparately assert their immediate interests.”
A senior administration official said that for all the talk of alternatives to the dollar, it remained the currency of choice. “People are still willing to loan money to the United States for 4 percent over 30 years,” the official said. “Investment choices are choices among alternatives and the United States remains a strong choice.”
The nations gathering in Seoul, South Korea, this week to discuss global economic issues show few signs of sublimating their own interests to some greater good. “It’s become every country for itself,” said Jeffrey E. Garten of the Yale School of Management, who is participating in a meeting of business leaders in Seoul. “In letting domestic considerations so completely trump international considerations, the U.S. is reinforcing views in France and China, among others, that the entire monetary system is a political toy of a dysfunctional U.S. political system.”
One hears versions of that around the world. “It would be more desirable for the U.S. to fix its own industries, fix its structure and become more competitive,” said Cho Gyeong-lyeob, an economist at the Korea Economic Research Institute, a research organization. “Instead, it chose the easy way out.”
The “easy way out” he referred to was the Federal Reserve’s decision last week to flood $600 billion into the economy. The Fed’s chairman, Ben S. Bernanke, said the technique was the only tool remaining to push down interest rates and try to build demand, and with it the creation of jobs.
But abroad, the move looks very different. From Europe to Asia, officials have been arguing that the Fed was simply enabling America’s dependence on debt-fueled growth, this time at the expense of other nations.
If the Fed’s action devalues the dollar, as is widely expected, it will make the products of other countries less competitive.
The emerging economies have some legitimate worries. If rates fall even further in the United States, investment is expected to flow to markets where returns are higher. Brazil and other nations are already warning of “asset bubbles” — rising prices for real estate and other investments — that could create conditions similar to those that led to the bust in the United States three years ago. They are considering taxes on incoming capital.
Pushback on Geithner
“I see more risks and possibilities of global excesses in the decisions that have been made by the Fed than benefits,” Jean-Claude Junker, the chairman of a group that represents euro-zone finance ministers, said in Paris.
That sentiment appears to be strengthening resistance to the United States as it pushes new solutions to address the financial imbalances that many economists believe threaten the stability of the global economy.
Two weeks ago Mr. Obama’s Treasury secretary, Timothy F. Geithner, suggested a new way of reducing the yawning gap between countries that are running huge export surpluses and those, including the United States, that run big deficits. He suggested a numerical target: trade surpluses should not exceed 4 percent of a nation’s gross domestic product. There was a near rebellion.
The Chinese rejected a firm target. So did Angela Merkel, the German chancellor, who told The Financial Times on Monday that Mr. Geithner’s plan was “too narrowly conceived” and suggested that the core problem was a lack of competitiveness.
“It’s not going to happen,” one senior European diplomat said of Mr. Geithner’s plan on Tuesday, “and the Americans know it.” Mr. Geithner still endorses the idea, but he seems to be scaling back.
The lack of alternatives has also led to some novel suggestions, notably from Robert B. Zoellick, the president of the World Bank, who suggested this week that the world go back to tying currencies to gold — nearly 40 years after President Richard M. Nixon ended that linkage. His suggestion, like Mr. Geithner’s, was not exactly welcomed as a solution.
Many economists said they suspected more cynical calculations at work in blaming the United States. China has almost certainly managed to deflect criticism away from its own practices; similarly, the Germans may have distracted European nations dissatisfied with how Germany, the largest European economic power, has dealt with its debt-laden, free-spending euro partners. Part of the problem is that as countries go their own way, they are each arguing that they are acting for the greater global good.
When Britain slashed its budgets recently, its new government said that was the only way to restart growth and bring back the confidence of investors. Others around Europe are doing the same, arguing that a strong Europe is in the interest of the global economy.
The Obama administration has gone in the opposite direction: deficit spending. Mr. Obama argued the other day that his No. 1 priority, for the good of the country and the world, was to restore growth quickly, and that European-style austerity programs would run the risk of putting more people out of work. And the Chinese have refused to let their currency appreciate in value, despite huge trade surpluses, saying they have to worry first about job creation and stability.