By Chris Cermak

WASHINGTON (MNI) – With U.S. consumer demand still sluggish and
housing mired in a slump, some are asking whether the U.S. will have to
look outside its borders for a source of growth that could help return
the world’s largest economy to pre-crisis trends.

For the Obama administration, this will once again be the driver
behind the U.S. visit this week of Chinese Vice President Xi Jinping,
who will meet President Obama at the White House Tuesday afternoon.

“We’ve pursued this strategic pivot to the Asia Pacific because
we’re focused on increasing our presence in the fastest growing market
in the world, which is absolutely critical to achieving the
administration’s goal of doubling U.S. exports [by 2015] and creating
jobs back at home,” Ben Rhodes, deputy national security advisor, told
reporters on a conference call Friday.

For Olivier Blanchard, chief economist of the International
Monetary Fund, the answer for returning U.S. growth to trend can only
lie in improving net exports and reducing the country’s trade deficit,
which the Commerce Department Friday put at $48.8 billion for December,
the highest in six months, and at $558 billion for 2011, the most since
2008.

Consumers, the key drivers of growth in past years, “now have
become more reasonable, and something else has to come if you want to go
back to the same level of output, same level of demand” as before the
2008-09 crisis, Blanchard said last week at an economic forum hosted by
the Carnegie Endowment for International Peace in Washington.

Blanchard noted the U.S. housing sector was likely to remain weak
for the foreseeable future, while no parties expect to rely on increased
government spending over the long term. Only expanding abroad can
provide the answer.

“It has to be net exports and that old issue of how we reduce the
current account deficit in the U.S.,” Blanchard said. “As long as this
is not solved, the U.S. has a hard time operating on the level it should
try to operate.”

The Obama administration has long touted rising exports as one of
its keys to driving economic growth, with Obama pledging in 2010 to
double exports within five years. But trade data shows imports have
grown at roughly the same pace as exports during the economic recovery
from the 2008-09 crisis.

Export growth has outpaced import growth in percentage terms, but
so far not enough to hold down the trade deficit or push up the net
exports contributor to GDP. Real exports increased 6.8% and imports rose
5.0% over 2011, according to the latest trade data from the Commerce
Department.

Net exports contributed just 0.05 percentage points to GDP growth
of 1.7% in 2011, according to figures from the Commerce Department’s
preliminary estimate of Q4 economic output. The contribution from net
exports was negative in 2010, subtracting 0.51 points from GDP as
imports rebounded with 12.5% growth after a sharp drop of 13.6% in 2009.
Exports rose 11.3% after shrinking 9.4% in 2009.

Guy Lebas, chief fixed income strategist for Janney Montgomery
Scott, forecasts net exports will shave 0.1-0.2 percentage points off
U.S. growth this year, and isn’t any more optimistic about net exports
serving as the engine in years to come.

The strengthening dollar toward the end of 2011 is also expected to
push the trade deficit up further in the early part of this year. The US
dollar index rose from 75 at the start of November to above 81.5 in
mid-January. It was trading back down around 79 on Monday.

“I think the growth in U.S. exports is a hope, rather than a
realistic possibility right now, in large part because of relative labor
costs,” Lebas said in an interview with Market News International.

While the U.S. has found a promising niche in specialized high-tech
products — the Detroit-based automotive rejuvenation being an example
— Lebas argues labor costs will never allow the U.S. to reduce its
reliance on imports of lower technology goods. Even if consumer demand
is not likely to return to pre-crisis levels, it’s not likely to be flat
in coming years, either.

“If you look at the world today, there’s no real source of economic
inspiration from the U.S.,” Lebas said.

“There is no one source of growth that can drag the U.S. past what
some have termed escape velocity.”

— Chris Cermak is a Washington reporter for Need to Know News

** Market News International Washington Bureau: 202-371-2121 **

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