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The Trade Engine Is Stalling

Those hunting for hope that the world economy is on the road to recovery have some more bad news to digest: the grim outlook for global trade. The World Trade Organization is the latest to sound the alarm, notes the WSJ, as the WTO is projecting that the global volume of trade in goods would expand only 2.5 percent this year, down from 5 percent last year and nearly 14 percent in 2010. And the countries with the largest share of global trade will be the hardest hit—especially the United States, where exports have “accounted for almost half of U.S. growth during the recovery, compared with an average of 12% of growth in economic cycles over the past four decades.” China will feel the pain, too:

Weak exports have exacerbated a slowdown in China’s domestic economy, which economists project will grow around 7.5% this year, which would be the weakest annual expansion since 1990. . . . This slowdown is curbing exports to China from other Asian countries, such as Singapore and Thailand, which provide components for goods that end up in the hands of European consumers. Japanese exports to Europe also are tumbling.

The trade slowdown casts considerable doubt on the Obama administration’s ambitious goal of doubling U.S. exports in five years, a pledge which is central to its plan to boost the American middle class. As we’ve reported in the past, there are good reasons for optimism about the medium to long term health of American manufacturing, and we think manufacturing exports will be part of the next big surge in American growth. However, global conditions mean that that surge will not start right away, and even in the longer term even a substantial and sustained increase in manufacturing production won’t provide enough of a jobs boost to “save” the American middle class. There will be too many robots and automated processes in America’s next generation of manufacturing plants, and not enough human workers to turn America back into the blue collar paradise of the 1950s.

American economic policy needs to look beyond the present trade slump to promote exports and manufacturing, but that won’t be enough. The future of American employment and of the middle class lies in developing a much healther non-traded services sector, a goal that requires very different policies from the backward looking industrial corporatism that seems to be in fashion in Washington today.

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