NEW DELHI/WASHINGTON, September 23 (Reuters) -- India's prime minister has called on Group of 20 nations to send a strong warning against protectionism this week as world leaders seek to shore up a tentative global recovery and prevent future economic crises.
The United States, which is hosting the G-20 sumit this week, slapped tariffs on Chinese-made tires earlier this month, reviving fears of a tit-for-tat round of protectionist measures that risk strangling trade and plunging the global economy back into recession.
"We would also like to see a strong message to emerge from [the G-20 summit in] Pittsburgh against protectionism in all its forms, whether trade in goods, services, investment, or financial flows," Manmohan Singh said in a statement before leaving for the summit.
Singh said the global economy and financial markets have shown an improvement since G-20 summits earlier this year, but said the economy was "still not out of woods."
Washington has scoffed at the idea of a budding trade war, while pushing a plan for G-20 nations to build a more balanced global economy that would be less prone to painful boom and bust cycles.
British Prime Minister Gordon Brown said on September 22 that there was substantial backing among the group for creating a new framework to shrink surpluses run by top exporters such as China while cutting ballooning deficits in others.
But such a plan would ultimately need to convince consumers in debt-laden nations, including the United States, to save more and buy less, which would be a tall order. And such a process would almost certainly require an even weaker U.S. dollar, which fell to one-year lows today.
China is likely to agree publicly with the broad aim of a new framework, especially if it gives emerging nations more clout on the world stage, but is expected to resist any sweeping reforms that could threaten its robust growth. It is also expected to brush off any calls from the West to let its tightly controlled currency move more freely.
It is also unclear whether Germany and Japan, two other big exporters, would back the U.S. proposal, and how such a plan would be implemented and enforced.
Brazil, one of the emerging heavyweights of the developing world, spoke out against the U.S. proposal, saying the International Monetary Fund already played a role in monitoring economies and calling Washington's plan "obscure."
While the G-20 meeting may signal another step in a long-term global power shift, investors will focus on clues on how the United States and leading European nations plan to wind down massive emergency stimulus programs without destabilizing economies again.
"We believe that some level of global coordination is likely in the quarters ahead. This is particularly for central bank exit strategies which may be coordinated so as not to trigger adverse currency movements," Glenn Maguire, Societe Generale's chief Asia economist, said in a note.
"Yet, we remain skeptical on the ability to put into place a more rigid framework that would enforce a new economic world order," Maguire said.
World leaders are also expected to talk tough about the need for tighter financial regulations, though concrete reforms are expected to remain a distant prospect.
First, the G-20 has no law-making power and any real changes will be left to national authorities. Secondly, there is no agreement how far the new rules should go and German Finance Minister Peer Steinbrueck has accused London of doing its best to block stricter rules to protect its position as a financial marketplace.
High on the agenda for U.S. President Barack Obama and other leaders will be proposals for restraining banker pay and making banks patch up their balance sheets to help prevent a repeat of the near meltdown of the financial system.
G-20 leaders will also be discussing climate change, where rifts remain between rich and developing economies over how quickly to cut carbon dioxide emissions and who should foot the bill.
U.S. Treasury Secretary Timothy Geithner said on September 22 the world's biggest economy was at the "beginnings" of a recovery, and the key was to ensure that the recovery was self-sustaining.
"To make sure that as we recover from this crisis we are laying the seeds for a more balanced, more sustainable recovery: That is the agenda," Geithner said.
However, recent stabilization in financial markets and economies may be quickly blunting political momentum for change.
French Economy Minister Christine Lagarde said she feared growing signs of economic recovery could undermine commitments to rework and regulate the world financial order.
"Numerous players are saying ... let's go back to our old habits and carry on with our business as we did in the past," she told a news conference.