Barack Obama, Greta Garbo and China's trade surplus

By Alan Wheatley, China Economics Editor - Analysis

BEIJING (Reuters) - When Barack Obama tackles China on its trade surplus, as surely he will, Beijing will be tempted to invoke the actress Greta Garbo: "I want to be left alone."

As a nascent superpower, China insists on global attention for its political views. On shaping currency and trade policy, by contrast, Beijing has largely stood aloof, content to punch below the weight of what is now the world's third-largest economy.

But 2009 could be the year in which the Garbo defense ceases to be an option. For as much as China might like to keep below the incoming U.S. president's economic radar, there is a growing consensus among experts that a rebalancing of the international economy -- with a central role for China -- can wait no longer.

With the West deep in recession, these experts fear that unless Beijing gets serious about reducing its supersized trade surplus, the China-bashing that was largely held in check during President George W. Bush's eight years in office could finally burst forth into trade and currency wars.

"This year and perhaps for some time to come, trade problems will be an expanding area of friction between China and the United States," Cui Liru, president of the China Institute of Contemporary International Research, an influential think-tank in Beijing, told Globe magazine.

It is China's trade figures for November and December that have set the alarm bells ringing.

Imports fell much faster than exports, underlining the weakness of China's domestic consumption and reinforcing its position as a net supplier of goods to the rest of the world. In emotive words, China is "stealing growth" from others.

"With the world economy struggling as global demand slows, this adds to the risk that trade tensions will worsen between China and its trading partners this year," said Mark Williams, an economist with Capital Economics in London.

DARKENING CLOUDS

Legislative initiatives to punish China unless it revalued the yuan and opened its markets further have been a constant of the U.S. legislative landscape for the past five years. They have gone nowhere, neutralized by the high-level Strategic Economic Dialogue with China created by Treasury Secretary Henry Paulson.

But the economic context has changed dramatically with the deepening of the global credit crisis. The stakes are now higher.

The United States could live with a large trade deficit as long as its private-sector demand was buoyant. However, U.S. consumers are now retrenching to pay off debts, so Obama will have to resort to massive government spending to plug the resulting gap in aggregate demand and to hold down unemployment.

Running big trade and budget deficits indefinitely is not possible, either economically or politically.

Hence the conclusion that any effort to put the U.S. economy back on an even keel has to involve a corresponding rebalancing by China, which ran a surplus of $246.45 billion with the United States in the first 11 months of 2008 and has been increasing its share of the U.S. import market for manufactured goods.

"It is no surprise there is increasing talk that the incoming Obama administration will focus its trade spotlight on China.