I said some cautiously optimistic things when Geithner proposed limiting trade imbalances among countries in a recent G20 meeting.  I also said his proposal, imbalances of no more than 4% of GDP, was a bad goal.  The devastating U.S. trade deficit is only 3.2% of GDP.

The bigger problem is that the Geithner proposal provides fodder for distraction by two groups (1) free traders who think responding to cheating is protectionism; and (2) those supporting Chinese cheating.  The “multi-lateral talks” approach had previously been shown an abject, multi-year, economy-killing failure.  But the Geithner proposal could be a way for opponents to get the multi-lateralist bandwagon going again.

Case in point.  The NY Times editorial board has been dragged kicking and screaming to admit that China cheats, but has opposed legislation to neutralize that cheating.  (Note:  The WSJ editorial board has been dragged nowhere.  They continue to exist on another planet).

What go me worried was their editorial yesterday (10/31/10) praising Geithner’s proposal.

A new proposal could offer a way out. The Obama administration, which has been trying to rally pressure on Beijing, is calling on the world’s largest economies to agree to a target for the size of their trade imbalances.

They are wrong.  This is failed multi-lateralism in new clothes.

There is no evidence that the Obama Administration is proposing this Geithner/G20/IMF route as a way to kill the currency bill in the Senate.  However, some opponents may try to use this red herring to try avoiding a lame duck session Senate vote.

The multi-lateralism solution is on life support.  We need to insist upon and enforce a “Do Not Resuscitate” directive.