Global trade comes roaring back, but U.S. shoppers still cautious

This week, trade reports from the world's biggest exporters — Germany, China and the United States — are expected to confirm that more goods are moving now that the recession has loosened its grip on the world economy.

Doubts remain about whether the economic revival is sustainable once governments and central banks curb the flow of easy money. But there is reason to believe that trade will hold up thanks to strength in emerging markets.

Uri Dadush, an economist with the Carnegie Endowment for International Peace in Washington and a former director of international trade for the World Bank, said loose money clearly plays its part in the trade rebound, but there is also evidence that demand is rebounding.

“While the private sector is picking up somewhat hesitantly, it is nevertheless picking up — in this country, in Europe, and it is picking up big-time in Asia, which is a very large part of the picture,” he said.

During the worst phase of this crisis, Japanese exports halved from a year earlier and were off by about a third from China. The drop in global trade was a big reason why Germany's economy contracted so sharply in the first half of this year.

U.S. households, stung by an US$11 trillion drop in wealth, cut back on all but the bare necessities and are still spending cautiously with unemployment topping 10 percent.

Yet economists polled by Reuters think Germany's exports grew in September after an unexpected drop in August. China's exports are also on mend, although they are still expected to post a sharp year-over-year decline for October.

U.S. trade has also improved. Economists are looking for increases in both imports and exports in Friday's trade report, leaving the deficit slightly wider.

Healthier exports would come as a welcome relief to President Barack Obama, who faces growing discontent as U.S. unemployment climbs. He has long argued that the U.S. economy is far too reliant on borrowing and imports, and ought to refocus on domestic saving and exports.

That is at the heart of the rebalancing effort Obama promoted at a meeting of world leaders in Pittsburgh in September. He will probably reiterate that point as he begins a week-long trip to Asia on Wednesday.

In order to achieve Obama's goal, the United States needs to save more, and big exporters — namely China — need to take steps to boost domestic demand.

Some of that is already happening, thanks to the recession. U.S. households are stepping up savings, although the increase in government borrowing dwarfs that. China's retail sales have been rising sharply and are expected to show a 15.8 percent gain for October in a report expected this week.

Simon Johnson, a senior fellow at the Peterson Institute for International Economics, thinks emerging markets — and China in particular — will be a primary driver of global growth in the coming years.

That has its advantages for the United States because fast-growing countries need to import commodities and other raw materials. That demand is evident in the Baltic Exchange's dry freight index, which tracks commodity shipping rates. It has risen 57 percent in the past six weeks.

Johnson thinks Asian demand may even have been part of the reasoning behind Berkshire Hathaway's surprise announcement last week that it was buying railroad Burlington Northern Santa Fe Corp for US$26 billion.

“I think Warren Buffett just went long China and short dollar with his purchase of Burlington Northern,” he said. “They're going to buy a huge amount of commodities. A lot of those commodities are going to run through his railroad.”

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