Trade tensions flare as recovery fades

Trade figures coming this week from three of the world's biggest exporters -- Germany, China and the United States -- are likely to show vast gains from a year earlier, when the global recession was at its peak.

But they may also reflect a downshift in the rate of recovery. In China, for example, economists polled by Reuters are looking for a sharp 23 percent jump in January's exports year-over-year, but a decline when compared with December.

The contrast is even more dramatic for China's January imports, which are forecast to jump by 86 percent from a year earlier but decline from December.

That pattern matches what is happening in the United States, China's best customer. Fourth-quarter economic growth was considerably stronger than expected, but recent readings suggest January's growth will be slower.

We're going to settle down, growth is going to slow, said Nigel Gault, chief U.S. economist with IHS Global Insight, listing stubbornly high unemployment and weakness in domestic demand among the obstacles.

Most economists think it will be at least four years before U.S. unemployment gets anywhere close to its pre-recession level of 5 percent, which leaves the United States relying heavily on the rest of the world to help lift growth and create jobs.

President Barack Obama wants to double U.S. exports over the next five years. China also needs to maintain its export growth to create jobs and keep its economy humming.

That is a recipe for conflict, and the disputes have been piling up. The latest round came on Friday when China said it would levy anti-dumping duties on U.S. chicken products.

Up until now we could be pleased that trade tensions have stayed as low as they have given how deep the recession was and how much unemployment was created, Gault said. Going forward, there will be more spats and at some point there's a potential for both sides to lose their patience.

DEBT AND THE DOLLAR

If the United States is to achieve its export goal, which economists see as a tall order, it will need strong global economic growth to boost demand. It will also need a weaker U.S. dollar -- or stronger Chinese yuan -- to make its goods more competitively priced.

Obama vowed last week to get much tougher with China on trade and currency rules. That elicited a tart response from Beijing that its currency was already at a reasonable level.

Goldman Sachs economist Sven Jari Stehn estimated that the dollar would need to depreciate about 30 percent over the next five years in order to reach the export target -- and that assumes global growth comes in at a healthy 4.5 percent clip.

The International Monetary Fund expects 2010 global growth of 3.9 percent, and 2011 growth of 4.3 percent.

Stehn said if GDP is more like 4 percent, the dollar decline would need to be around 41 percent.

The dollar has been moving in the opposite direction lately, largely because of growing worries over government debt burdens in European countries including Greece, Portugal and Spain that prompted risk-averse investors to sell euros and buy dollars.

The dollar is up some 8 percent against a basket of currencies since early December.

There may be more bad news from Europe this week. Euro zone fourth-quarter GDP figures are due on Friday, and are likely to show growth slowed to 0.3 percent from 0.4 percent in the previous period. In Germany, Europe's biggest economy, fourth-quarter GDP growth is expected to fade to 0.2 percent after advancing 0.7 percent in the third quarter.

Julian Callow, an economist with Barclays Capital in London, said recent euro zone production and demand data have been disappointing, suggesting that first-quarter GDP will also be weak and raising the risk of a double-dip recession.

If Europe is to avoid that, it will need Germany's exports running at full strength, he said.

Europe has also drawn China's attention on trade. Last week, China launched a dispute at the World Trade Organization against European Union duties on shoes.

With the United States, Germany and China all looking to export their way to stronger growth, there may be a three-way trade fight brewing.

(Editing by Leslie Adler)