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Biggest hit as GDP falls: American exports

US output fell 3.8 percent at the end of 2008, but exports slid at a 20 percent rate.

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But many nations relied on US consumer spending as an engine of growth. Now, as American households retrench, there is suddenly less momentum for growth abroad as well as at home. In the long run, economists say other nations must strengthen their domestic consumption to create a more balanced world economy. But that transition may not happen quickly, even if other governments join the US in fiscal stimulus efforts to counter the recession.

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Global trade plummeted in the fourth quarter of last year. Those US consumers cut their demand for imports at a 16 percent annual pace.

"A lot of the burden of the US slowdown is being borne by foreign producers," says Ken Mayland, president of ClearView Economics near Cleveland. But the parallel drop in US exports represents a "huge decline in what has been the fastest growing sector of our economy."

On Friday, Caterpillar announced it plans to cut another 2,100 jobs, on top of some 20,000 layoffs announced earlier last week. The company has 113,000 employees worldwide.

Some economists worry that the recession could cause nations to focus more on self-interest with the risk that measures designed to protect domestic jobs could backfire by deepening the global downturn.

So far, this remains more a risk than a reality. The danger is that modest actions could end up provoking larger ones. Washington's stimulus measure, for example, may include a "buy American" provision designed to focus demand on products largely made in the US.

The delicate US-China relationship faces new tension. As a presidential candidate, Obama pledged to take a tougher line on trade issues with China.

Officials in Beijing weren't pleased when US Treasury Secretary Timothy Geithner told senators at his confirmation hearing that China was manipulating its currency.

Vice President Joe Biden said on Thursday that the Obama administration had made no determination on whether China was manipulating its currency and would not make a unilateral attempt to block its exports.

In a phone call Friday, Chinese President Hu Jintao told Obama that he wanted to strengthen cooperation between the two countries to fight the global economic slowdown, China's Xinhua news agency reported.

Some economists say that it's legitimate for the US to work harder to end abuses of current trade law, with China topping the list of alleged offenders. But most economists also warn that a recession is a risky time for trade relations to fray. In the Great Depression, rising trade barriers deepened the downturn.

Wire service material was used in this report.