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With U.S. economy stuck, economists look abroad for growth

WASHINGTON — As U.S. consumers stop spending and investors keep their money to themselves, government and business leaders hoping to get the country's ailing economy moving again are playing one of their few remaining cards.

They're trying to sell more U.S. goods overseas despite the decline of both global demand and U.S. competitiveness.

Exports currently make up about 13 percent of the country's total economic activity, far less than the 70 percent taken up by production for domestic consumption. But that's where economic growth can still happen, analysts say, especially as the domestic housing and credit crises promise to freeze spending at home for at least another year.

Economists and business leaders suggest the incoming Obama administration implement export-friendly measures such as streamlining U.S. customs operations, negotiating more free trade agreements and developing industries such as alternative energy that can become the next generation of U.S. economic powerhouses.

"The role of exports is colossal," said John Murphy, vice president of international affairs at the U.S. Chamber of Commerce. "Over the past two years, exports were one of the few bright spots for the U.S. economy. We're going to need strength there in any recovery."

That's been the strategy of St. Charles, Ill.-based motor manufacturer Bison Gear & Engineering, which has seen its international sales jump by 50 percent over the past three years despite an overall decline of 10 percent since 2004 in the general motor market.

The company, like other exporters, benefited from the U.S. dollar falling by 22 percent between 2002 and 2008, which made many of its products cheaper overseas. The dollar's recent rebound, however, has erased some of that advantage.

"I see (exports) as an important component to our future," said the company's owner, Ron Bullock. "We're investing in that area and adding people to support it."

While the rest of the economy suffered, U.S. exporters had their best year ever in 2008, when they fueled an all-time high 12.8 percent of total U.S. economic activity, Murphy said.

The top U.S. exports were aircraft, entertainment products, machinery and transport equipment. Manufactured goods made up 60 percent of all U.S. exports.

Export growth was crucial to keeping the U.S. economy expanding, albeit at a meager pace, rather than falling into an early recession over 2006 and 2007, Murphy said.

Spurring more U.S. exports, however, will prove tough as global economies cool this year.

The National Association of Manufacturers expects new data to show "a dramatic slowdown" in export growth over the last three months of 2008 as a result of the economic crisis, said the association's chief economist David Huether.

With one in five manufacturing jobs dependent on exports, U.S. manufacturing had already sunk to its lowest level in nearly three decades, according to a recent study by the trade group the Institute for Supply Management.

U.S. companies have long been fighting a losing battle against some foreign competitors, who can pay workers less and avoid often costly U.S. regulations.

The Congressional Budget Office found that while U.S. manufactured exports rose by 58 percent between 1999 and 2007, manufactured imports grew by 78 percent and the U.S. trade deficit doubled.

On top of that, the recent rise of the U.S. dollar has wiped out many exporters' gains.

The Ottumwa, Iowa-based firm Al-jon Manufacturing, which produces scrap processing and solid waste equipment, has seen the cost of its products to foreign buyers grow by as much as 50 percent as the U.S. dollar has strengthened, said the company's Chief Executive Officer Kendig Kneen.

The company laid off 20 of its 180 employees last week because of a general drop in the scrap processing market, Kneen said. Exports make up about a fifth of Al-jon's sales.

"We've looked at exports as one of the true growth areas of our company," Kneen said. "But we've had to change the way we do business as a result of dollar shifts."

How to fuel even more export growth as the rest of the economy shrivels has been a top question among policymakers, many of whom have pinned recovery hopes on an expansion of exports.

U.S. Commerce Secretary Carlos Gutierrez said opening more avenues to free trade with the rest of the world will be key. President-elect Barack Obama and the new Democratic-controlled Congress have cast a more skeptical eye on such agreements, saying they often move U.S. jobs overseas.

"We have to be part of a global economy," Gutierrez said. "We cannot step back. We hope the next administration will continue what (President Bush) started, which is to open more markets."

The U.S. Chamber of Commerce called for federal legislators to approve three pending free trade agreements with Colombia, Panama and South Korea, which the chamber estimated would generate $42 billion in extra trade.

Thawing out global credit markets, which remain paralyzed, will also help spur more foreign consumption of U.S. goods, Gutierrez said.

Echoing other exporters, Bullock said relentless research and development has kept his company competitive even during these hard economic times. He recommended such research become top national policy.

On that note, Obama has touted research into alternative energy and other environmentally-friendly technologies as a potential motor of U.S. exports.

"It's innovate or evaporate," Bullock said. "One out of seven of our associates has an engineering diploma. You can't sit still if you want to stay competitive."

McClatchy economics correspondent Kevin G. Hall contributed to this report.

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