In a 'rebalanced' world economy, a diminished US role?
American consumers can no longer borrow madly to buy so many goods from abroad. Shoppers in emerging nations must be the next engine of growth, some argue.
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• At a Pittsburgh summit of the Group of 20 nations last month, a wider pool of leaders rallied around the idea of working together on "global rebalancing." The process lacks an enforcement mechanism, but the group asked the International Monetary Fund (IMF) to assess how individual nations do.Skip to next paragraph
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• At the G-20 meeting, the world's economic old guard agreed that major emerging nations should get formal seats at the table when big policy issues arise. In effect they said goodbye to the old Group of Eight and made the enlarged G-20 pool the primary forum for big-country discussions in the future.
• In early October, IMF forecasters gave an upward bump to their outlook. In part, this stems from stabilization in advanced economies. But the recession has amplified the importance of emerging economies. China and Brazil, to name two, appear to be recovering faster than expected. The IMF forecasts 5.1 percent growth in emerging nations next year, and just 1.3 in the advanced economies.
"The current numbers should not fool governments into thinking that the crisis is over," IMF chief economist Olivier Blanchard has warned. Sustainable growth for the world will depend, he said, on solving the problem of big imbalances.
The biggest of these, perhaps, is the US trade deficit. It reached $840 billion last year. That's how much America imported, over and above the value of its exports.
Since 2002, as China's exports ramped up, the US trade gap has surged into what some economists see as a danger zone – a size greater than 5 percent of America's gross domestic product. That's way beyond where it was in the 1980s and '90s.
One cause for the trade gap is US financial habits. High federal budget deficits and consumer debt mean that America is forcing itself to borrow overseas – and in effect that means imports must outrun exports. The danger is that other nations will become wary of lending so much, and a messy collapse of the dollar or a spike in US interest rates could result. That would be bad news for the US – and for the rest of the world.
But another cause stems from policies outside the US. Asian nations manage their currency values to promote exports, economists say.
The trade deficit has eased this year, as recession curtails Americans' appetite for Chinese electronics and other goods. But the trade gap could widen again – or at least fail to keep shrinking – absent additional actions by policymakers, economists say.
Beyond the gigantic trade deficit, some economists worry most that the overseas migration of America's manufacturing base is reaching a crisis level.
The US is now running trade deficits in advanced-technology products such as computers – a trend that began in 2002. In a few years, Chinese firms expect to export cars to the US. Even America's longstanding leadership in aerospace and semiconductors is at risk, says economist Charles McMillion of MBG Information Services, in a new report for the US-China Economic and Security Review Commission.