SEOUL, South Korea -- The world's economies stand on the brink of a trade war as leaders of rich and emerging nations gather in Seoul.
A dispute over whether China and the United States are manipulating their currencies is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression. The biggest fear is that trade barriers will send the global economy back into recession.
Hopes had been high that the Group of 20, which includes wealthy nations like Germany and the U.S. and rising giants like China, could be a forum to forge a lasting global economic recovery. Yet so far, G-20 countries haven't agreed on an agenda, let alone solutions to the problems that divide them.
G-20 leaders were expected to issue a communique detailing results of the summit on Friday.
The delegates have clashed in particular over the value of their currencies. Some countries, like the United States, want China to let the value of its currency, the yuan, rise. That would make Chinese exports costlier abroad and make U.S. imports cheaper for the Chinese to buy. It would shrink the United States' trade deficit with China, which is on track this year to match its 2008 record of $268 billion.
But other countries are irate over the Federal Reserve's plans to pump $600 billion into the sluggish American economy. They see that move as a reckless and selfish scheme to flood markets with dollars, driving down the value of the U.S. currency and giving American exporters an advantage.
Richard Portes, president of the Center for Economic Policy Research in London, said the dim prospect for a substantive agreement "is very dangerous for the world economy."'
Portes said he fears "the possibility that currency wars and global imbalances might lead to severe trade protectionism over the next year or so."
For now, the G-20 countries are expected to agree on noncontroversial issues, like an anti-corruption initiative and the need for oversight by the International Monetary Fund.
But they're finding no common ground on the most vexing problem: how to address a global economy that's long been nourished by huge U.S. trade deficits with China, Germany and Japan.
Exports to the United States powered those countries' economies for years. But they've also produced enormous trade gaps for the U.S. because Americans consume far more in foreign goods and services than they sell abroad.
President Barack Obama told fellow leaders that the U.S. cannot just keep borrowing lavishly and sending its money overseas. It needs other countries to buy more exports from the United States and elsewhere so Americans can afford to buy other countries' goods, he said.
"The most important thing that the United States can do for the world economy is to grow, because we continue to be the world's largest market and a huge engine for all other countries to grow," Obama said at a news conference in Seoul.
But Brazil's president, Luiz Inacio Lula da Silva, warned that the world would go "bankrupt" if rich countries reduced their consumption and tried to export their way to prosperity.
"There would be no one to buy," he told reporters.
A failure to agree on currency and trade in Seoul could intensify countries' efforts to rig their currencies to gain an advantage. A full-blown trade war could lead countries to erect punitive barriers to imports -- a replay of what happened in the 1930s. A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade.
The U.S. Congress "wants to see some blood ... wants a bit of a spat with China on currency wars," contends Gregory Chin, a senior fellow at the Center for International Governance Innovation in Canada. The House recently voted to punish China for keeping its currency artificially low.
Government ministers and senior G-20 officials have tried to draft a substantive joint statement to be issued Friday, summit spokesman Kim Yoon-kyung said.
Leaders held a working dinner Thursday at Seoul's grand National Museum of Korea, greeted by sentries in royal garb and escorted by children in traditional Korean dress. Outside, a few thousand protesters rallied against the G-20 and the South Korean government. Some scuffled with riot police, but the march from Seoul's main train station was largely peaceful.
"We can put people watching this summit at ease by reaching a concrete agreement that takes a step forward," South Korean President Lee Myung-bak said.
But Lee was unable to announce a long-stalled free-trade deal with Obama. That impasse between two close allies didn't bode well for any broader compromises.
Besides providing a political boost for both leaders, an agreement could have helped shift the tone for a summit in which nations appeared set to defend their short-term economic interests above all.
The bickering in Seoul contrasts with the first G-20 meeting in Washington two years ago and the second one in London in 2009. Back then, rich and developing countries agreed to cooperate to lift the world out of the Great Recession, reform their financial systems and pursue free trade.
But the global economy was in free-fall then. It's in a tepid recovery now. And some countries, such as China and Germany, are prospering on the strength of their exports. As a result, G-20 countries "feel less pressure" to cooperate, Portes says.
Obama suggested the global economy will function best when countries let the markets set the value of their currencies, rather than trying to rig them. His message was aimed mainly at China, whose trade surplus with the U.S. exceeds that of any other trading partner. Obama wants Chinese companies to sell more to their own consumers, rather than rely so much on the U.S. and others to buy low-priced Chinese goods.
President Hu Jintao assured Obama on Thursday that China has an unswerving commitment to pressing ahead with currency reform, said Ma Zhaoxu, spokesman for the Chinese delegation.
But China doesn't want to discuss its trade or currency conflicts with the U.S. in an international forum like the G-20, said Yu Jianhua, director general of the Department of International Trade and Economic Affairs in the Commerce Ministry.
Some critics warn that U.S. interest rates kept too low for too long could inflate new bubbles in the prices of commodities, stocks and other assets. Developing countries like Thailand and Indonesia fear that falling yields on U.S. government bonds will send money flooding their way in search of higher returns. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.
China and Taiwan this week announced plans to restrict how much foreign money moves into their markets. At the same time, a U.S. proposal to limit trade surpluses and deficits to 4 percent of a country's economy has run into resistance.
"Targets are neither economically appropriate or appropriate from a financial perspective," German Chancellor Angela Merkel said. "What's important is that we don't resort to protectionist measures."