Ron Kirk faces a tough balancing act
Source of Picture: United States Mission - Geneva
"The rebuilt American economy must be export-oriented and less consumption-oriented," said Larry Summers, Director of the US President's National Economic Council, earlier this month.
But, as The Economist says in this article, this will be a little like turning a giant oil tanker in the opposite direction; meaning, it will take considerable time during which America will suffer sub-par growth, warns Mohamed El-Erian, CEO of Pimco - the world's largest bond investor.
So what's going to happen when the US has to start reining back its huge budget deficit through cuts in economic stimulus? Will the economy have been sufficiently transformed by then?
Or could the US be dragged into a wave of protectionist policies in order to protect domestic industry in the absence of a rise in exports sufficient to make up for all that lost government stimulus? Goodness, that sounded like a mouthful.
It might not be the protectionism we are all familiar with - for example, antidumping duties which are more favoured by the developing world.
Instead you might seen much greater scrutiny of imports from the developing world on the grounds of safety and carbon emissions (by this point, if the House of Representatives gets its way, there could be a carbon import tax in place anyway for countries that don't sign up to a US carbon trading scheme).
Closer attention might also be paid to the working condition, and pay of labourers in countries such as China. Ron Kirk, the US trade representative, recently gave a speech to steel workers in Pittsburgh in which he warned America's trading partners about violations in labour standards.
On the other side of the world, China - as we've written before on this blog - might have to also rein back government spending and order the banks to reduce loan growth.
And in order to repair the their balance sheets, the banks may be forced to raise deposit rates.
If rates rise by enough the real cost of borrowing (i.e. the rates minus inflation) will be positive again.
Real deposit rates becoming positive led to the last real-estate collapse in 2007 and a wider economic slowdown in China.
This could hamper the country's efforts to rebalance its economy in the opposite direction to the US - away from exports and more towards domestic consumption.
Thus in a desperate effort to protect growth, the Chinese government might be even less likely than at present to let the Yuan strengthen. A stronger Yuan would make it a lot easier for the US to raise its exports.
The chemicals industry might be well advised to plan for a very nasty trade war.