The recession hitting world economies is slowing the growth of international trade, which plays a vital role in the U.S. economy. In an interdependent world, foreign demand for American goods fuels manufacturing that supports millions of jobs, generates consumer spending and fosters domestic growth. But when global demand drops, so too does trade, which will have repercussions at home.
The fiscal crises in Europes eurozone and an economic slowdown in China have economists predicting slower growth in world trade. The World Trade Organization foresees just a 2.5 percent expansion of world trade this year, which is half last years growth rate and significantly less than the nearly 14 percent growth in 2010, the Wall Street Journal reported. The International Monetary Fund expects a 3 percent growth in the global economy this year.
The declining growth rate could translate to a drop in exports as world demand declines. It could curb recovery of the American economy. According to the Journal, exports have accounted for about half of the growth during this recovery, but a drop in exports could set back President Barack Obamas plan to create more jobs by doubling U.S. exports in the five years following the 2009 end of the recession.
American companies might downgrade their global trade expectations as well.
The global slump highlights the interdependence of world economies. The European Union was Chinas largest export market last year, but the fiscal problems in Europe reduced demand for Chinese goods this year by 5 percent through August. A resulting slowdown in Chinas economy curbs consumer spending and imports of raw materials and supplies from other countries. American exports to the EU also fell in July.
Europe and Chinas fiscal problems might seem distant to Americans struggling to cope with their own, but a decline in global trade could hurt their chances of finding a job.