Bush expects dollar's fall to lift exports, slow imports

Asian Economic News, Feb 22, 2005

WASHINGTON, Feb. 18 Kyodo

U.S. President George W. Bush said in an annual report Thursday that the weaker dollar and stronger economic growth in trading partners are expected to boost U.S. exports and slow imports in the future, which should help sustain economic growth in the world's biggest economy.

The ''Economic Report of the President'' for Congress highlights the benefits of the weaker dollar at a time when the Bush administration has repeatedly said it maintains a ''strong dollar'' policy, while urging Japan, Europe and other trading partners to shore up their economies to help the United States reduce its huge trade deficit.

''Looking ahead, stronger growth in U.S. trading partners appears to favor continued gains in export growth,'' says the report prepared by the Council of Economic Advisers. ''This effect will likely be augmented by an expected rise in the U.S. share of world exports, owing in part to recent declines in the value of the dollar.''

''The projected moderation of U.S. gross domestic product growth in 2005 and 2006 together with the recent change in the exchange value of the dollar suggests that growth in real imports will slow in the future,'' it says.

''Overall, the administration projects real exports to grow noticeably faster than GDP in 2005,'' it says.

Stronger net exports along with continued gains in consumer spending and investment growth will lead the economy to remain ''on a path of strong, sustainable growth'' in 2005, the report says.

In the report, the Bush administration projects moderate economic expansion from a five-year high of 4.4 percent in 2003 in terms of real GDP growth to a ''self-sustaining, healthy'' expansion, forecasting 3.9 percent in 2004, 3.5 percent in 2005, 3.4 percent in 2006, 3.2 percent in 2007 and 2008, and 3.1 percent in 2009 and 2010.

According to the latest U.S. trade statistics last week, the U.S. deficit in goods and services trade in 2004 hit a record high for the third straight year at $617.7 billion.

''The rapid growth of imports relative to exports largely reflects faster growth in the United States than among our trading partners,'' the report says.

As for growing criticism about the record-breaking giant trade deficit with China, the report defends the administration's ''free trade'' policy and highlights achievements made in opening up the Chinese markets since Beijing's accession to the World Trade Organization in 2001.

''For most of the period since China's WTO accession, U.S. exports to China have been growing at a rate faster than its imports from China,'' the report says. ''But this export growth is occurring from a much smaller base and so the bilateral trade deficit has grown.''

The report also stresses that bilateral trade statistics ''are not a useful measure'' to assess trade because higher Chinese exports stem from the Asian structural change of major companies moving their production base to China.

Imports from China have been advancing steadily but those from other Pacific Rim countries have been decreasing at a similar pace, according to the report.

''The data suggest the increased imports from China are largely coming at the expense of imports from other countries in the Pacific Rim,'' the report says. ''This change is due in large part of China's role as a final assembly platform for exports for Asian manufacturing firm.''

But the report points to the need for China to move to a ''flexible, market-based exchange rate,'' addressing concerns among lawmakers and business leaders that China's currency-peg system is hurting U.S. products.

In a message to Congress, Bush vowed to continue his ''free trade'' policy and open markets in other countries, despite lingering criticism in Congress about the huge trade deficit and overseas competitors undermining the U.S. industry and jobs.

''I believe that Americans benefit from open markets and free and fair trade,'' Bush said. ''I am working to open up markets around the world and make sure the playing field is level for our workers, farmers, manufacturers, and other job creators.''

Referring to such benefits as jobs created by foreign direct investment in the United States, the report says, ''Any move toward economic isolation would threaten the competitive gains made by U.S. exporters while harming U.S. consumers and firms that benefit from imports.''

In the report, the administration projects the U.S. employment rate to fall steadily from 6.0 percent in 2003 to 5.5 percent in 2004, 5.3 percent in 2005, 5.2 percent in 2006 and 5.1 percent between 2007 and 2010.

Bush also reiterated his ''ambitious'' agenda for his second term, pledging to halve the huge budget deficit and pursue various reforms, including those to social security, the tax code, the litigation system, healthcare and education.