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WSJ: Faltering World Trade Hurts Obama’s Export Drive

By Barton Webster   |   Monday, 01 Oct 2012 10:01 AM

World trade is faltering, and that doesn’t bode well for the export-led recovery in the United States. Nor does it help President Barack Obama’s bid to double American exports in five years.

The World Trade Organization recently forecast global trade would expand 2.5 percent this year, down from 5 percent last year and nearly 14 percent in 2010, The Wall Street Journal reported. An official Dutch economic think tank estimates world trade contracted in June and July.

"The problems of the advanced economies, particularly the eurozone, are being spread around the world," Andrew Kenningham, senior global economist at Capital Economics told The Journal. "Everybody is being dragged down."

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

The trade slump could especially hurt the shaky U.S. recovery, which has been led by exports. Until recently, says Tom Porcelli, chief U.S. economist at RBC Capital Markets, exports were a "stunningly strong driver of growth.” He said exports accounted for nearly half of U.S. growth since the recession, compared with about 12 percent of growth in prior recoveries in the last four decades.

And that doesn’t help Obama’s goal of doubling U.S. exports since the Great Recession ended in mid-2009.

With the global economy slowing, trade could weaken further, according to The Journal. The International Monetary Fund is lowering its forecast for global growth to just over 3 percent this year, according to projections set to be released at its annual meeting in Tokyo next week.

Europe’s sovereign debt crisis is rippling across the global economy. Chinese exports to the European Union were down 5 percent year-to-date through August. The European Union had been China’s largest export market.

China this year is slated to grow about 7.5 percent, its weakest annual growth rate since 1990.

That doesn’t help exports to China from other Asian countries, like Thailand, which ships components to China for goods that are eventually sold to European consumers, The Journal said, and Japan’s exports to the European Union are also falling.

U.S. exports to the European Union fell in July and overall export growth stalled over the summer. The Port of Los Angeles, the country’s largest port, said the volume of outbound containers fell 10.5 percent in August from the prior year.

U.S. export orders fell for three straight months through August, according to the Institute for Supply Management. That ended three straight years of expansion.

Meanwhile, China’s official factory purchasing managers’ index showed a second consecutive month of contraction on Monday, even as it improved from August’s low level, Reuters reported.

"The data continue to reinforce the hard landing that we have predicted for China, because this is the second consecutive month of a sub-50 reading," said Prakash Sakpal of ING in Singapore.

The global slowdown undermines the theory that big developing countries like China and India can decouple from the big developed economies like the United States and the European Union.

"If you had decoupling, you'd have growth rates holding up in the emerging markets despite the decline in Europe," said William Cline, a senior fellow at the Peterson Institute for International Economics, The Journal reported.

Shanghai, the world’s biggest port by volume, posted a 6 percent decline in outgoing shipping containers in August from a year earlier.

Even so, Chinese exports to the United States are up 10 percent so far this year, down from recent years but enough to make the United States China’s biggest export destination so far this year. That bests the European Union for the first time since 2006.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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World trade is faltering, and that doesn’t bode well for the export-led recovery in the United States. Nor does it help President Barack Obama’s bid to double American exports in five years.
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2012-01-01
 

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