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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Beyond any single product category, the weakening of America's broad supply chain overall "is the most urgent challenge to US economic and military security," he writes in the report. The need is not just to reduce imbalances but to do it in a way that allows both advanced and emerging nations to grow. US consumer spending is expected to rise in 2010 at barely half the pace typical in some recent expansion years, many forecasters say.Skip to next paragraph
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Americans faced worries about economic decline before, a quarter-century ago. One big difference today: US government debt has ballooned, is on pace to keep growing, and is held in large part by foreign governments and investors.
"The US then was the world's banker, and now we're the world's debtor," Mr. McMillion says.
A degree of debt is not a problem, but many economists see current trends as unsustainable.
Still, with the right policies, America can prosper and remain a world leader, they say.
So how does the US adjust the imbalances and retain its vigor? Here's a checklist of economists' top ideas:
Currency adjustments. If the value of Asian currencies were to rise and the value of the dollar to fall, US exports would be more competitive. Some researchers warn that currency changes are at best only part of the fix. But since 2002, a dollar decline has made US factories more competitive. So far, the dollar has adjusted mainly against European currencies, with the euro now looking unrealistically strong to many analysts.
Trade rules. The US-China Commission's 2008 report to Congress urged tougher efforts to prevent violations of World Trade Organization treaties (along with currency changes and other steps). The trick is to balance enforcement with pursuit of trade openness, which has buoyed global growth, economists say.
Industrial policy. A revival of US manufacturing might be aided by federal policies to promote jobs in leading-edge industries. One recent initiative will make sure the US gives China a run for its money in automotive batteries. Anything that reduces reliance on fossil fuels could be a double win - helping the environment and reducing dependence on oil imports.
Human capital. Strengthening education – and enticing more high-skilled foreign students to stay after studying in the US – can help America remain the leader in innovation and entrepreneurship. Economists also urge better support for displaced workers to train for new careers.
Consumer behavior. Greater saving by US consumers would reduce the need to borrow from abroad. Personal savings rates have already jumped, a welcome move although it was prompted by recession.
Federal deficits. It's hard for the US to rebalance while the government is borrowing huge sums from abroad. This looks to be a long-term battle centered on healthcare costs, although any dollar or interest-rate crisis could force tough decisions on Congress. When Wall Street went haywire last year, the dollar actually rose, because it's the world's haven currency. But "looking forward, there will increasingly be other options to the dollar," World Bank President Robert Zoellick said recently.