- The Washington Times - Thursday, May 13, 2004

The strongest global expansion in four years lifted U.S. exports to a record high in March, but also fueled ravenous growth in oil consumption that helped drive oil prices to an all-time high yesterday.

Strong growth in the United States and China are leading the global pickup. Although the revival is good news for U.S. consumers and businesses, who use about a quarter of the world’s oil, it also heralds a new era in which they must increasingly compete with the world’s most populous nations for limited oil supplies.

As oil prices hit an all-time high of $40.77 a barrel in New York trading yesterday, the challenges posed by the new world economic order were highlighted in a report on international trade from the Commerce Department.

A sharp pickup in growth worldwide propelled U.S. exports to a record $95 billion in March and fed a vigorous revival of the battered U.S. manufacturing sector.

At the same time, America’s thirst for oil combined with the highest oil import prices in 21 years to fuel a new high in overall imports. That drove the monthly trade deficit to a record $46 billion and offset the export-driven gains.

“Since last August, U.S. exports have risen 17 percent after essentially zero growth during the previous two years,” said David Huether, chief economist with the National Association of Manufacturers. “This is very good news indeed for manufacturers, who account for 80 percent of all goods exports.”

But he noted that the $2.4 billion increase in exports was overwhelmed by a $6.3 billion jump in imports of oil, primarily from the Organization of Petroleum Exporting Countries, and consumer products, primarily from China.

Oil imports, which account for about one-quarter of the $550 billion yearly trade deficit, soared by more than 20 percent to a record $10.2 billion. Imports from China, which account for another quarter of the deficit, also skyrocketed by 25 percent to $10.3 billion.

The rapid growth of oil consumption worldwide is being driven not only by rising U.S. demand, but by explosive growth in the use of oil in China, according to another report out yesterday.

China’s demand grew 18 percent during the first quarter after rising by 11 percent last year, according to the International Energy Agency in Paris.

The rapid growth caused China to surpass Japan last year as the world’s second-largest oil consumer. The agency predicts that Chinese demand will rise by another 14 percent this year.

China’s emergence as a pre-eminent manufacturer of goods for export and its growing middle class of consumers who increasingly can afford to drive cars are the reasons behind the rising oil consumption.

With a population of 1.3 billion, compared with 290 million in the United States, economists say this growth is just beginning.

Although China’s government recently moved to cool economic growth there from a torrid 9.7 percent pace set in the first quarter, the oil agency said it does not expect its efforts to significantly curb China’s demand for oil.

Rising economic growth has been driving up demand for oil, but economists say the sharp 24 percent jump in oil prices this year could start to hurt growth.

With oil broaching new records, average U.S. gasoline prices — already at record highs for weeks — appear headed into uncharted territory at more than $2 a gallon this summer.

Worries that the high energy prices will cut into consumer spending and business profits plagued Wall Street stock markets yesterday. But analysts say the biggest threat has not yet been realized.

Richard Berner, chief U.S. economist for Morgan Stanley, said the economy is increasingly at risk from an “oil shock” that could be caused by terrorist attacks or other disruptions in shipments from Saudi Arabia or other critical Middle Eastern exporters.

“An energy supply shock is the biggest threat” to the U.S. economic expansion right now, he said, although he put the chances at only one in five.

“If serious political troubles in Saudi Arabia trigger a disruption in crude supply, price levels could double, triggering a mild global recession,” he said.

Federal Reserve officials, by contrast, have displayed little concern about high oil prices even as they prepare to jolt the economy with a dose of higher interest rates.

Higher energy prices would only “muffle the recovery, not snuff it out,” said Dallas Federal Reserve Bank President Robert McTeer in a Wall Street Journal opinion piece yesterday.

“Paying more for oil and natural gas can sap growth, but this time around the recovery appears robust enough to withstand the higher energy bills.”

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