Obama whirlwind tour in Asia - G2 spirit still lives on

For the past week, President Obama has come and gone. He did a tour of a few Asian countries; drumming up trade for the US and at the same time ensuring partners that the US economy is on a stable path to recovery and deficits are under control.

Iran (non-proliferation) and climate change are also under the agenda, but less visible than the topic of world economy. Yet, G2 relations are the most watched by the world at the moment.

Before Obama arrived in China, the two administrations already came out and aired out their concerns to the press. China is complaining about low interest rates and weak dollar driving up global asset prices. China is worried about US monetary and fiscal policy might pose a threat to the global economic recovery. At the same time, US is complaining about China's yuan is massively undervalued. To the US, a low yuan gives an unfair advantage to Chinese exporters, while endangering other Asian exporters because their currencies are also rising. US argued that China should let the yuan rise which will raise household purchasing power and reduce the trade deficit. They also argued this would create world economic balance and beneficial to all.

Both sides have their point, yet no one is making a bold move. Indeed, China's central bank has hinted at renminbi rise, but it won't happen immediately. Tim Geithner is always reiterating strong dollar policy, yet no one believes him. The US is adamant on continuing with its quantitative easing policy as long as necessary to induce economic recovery and reduce unemployment. Yet China is worried about its 2.2 trillion dollars in foreign currency reserves, of which most are in US Treasury debts. A sudden spike in US fiscal deficit or US losing its AAA rating would force every investor to bail out of dollars and shift into gold, causing massive investment losses worldwide.

Yet, the status quo still remains. Essentially, a "wait-and-see" attitude is maintained, even though both sides will complain each other from time to time. As a result of the US crisis, the economy must be allowed to heal first before the next course of action could materialize.