Despite concerns about a double-dip recession, the U.S. economy is likely to achieve 2.5% growth in the next year, says Joseph Quinlan, chief market strategist at Bank of America Merrill Lynch. He argues that inflation is unlikely unless countries follow through on threats to erect trade barriers.
Quinlan notes that the U.S. is still the largest exporter globally, exporting $178 billion in goods and services monthly—more than most other countries export in a year.
"We're an exporting powerhouse," he said today at the Alexander Hamilton Best Practices Summit in New York City, noting that much of today's U.S. manufacturing, in areas like capital goods and agricultural machinery, takes place in Southern states such as South Carolina, Georgia and Alabama.
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Nevertheless, the U.S.' manufacturing capabilities have not kept pace with its companies' innovations, Quinlan says. He notes that Amazon shopped the specs for the Kindle to potential U.S. manufacturers but found that none had adequate capabilities, and the company ultimately employed a South Korean manufacturer. The discrepancy between U.S. manufacturers' abilities and U.S. companies' needs appears likely to lessen, though, especially as costs in developing countries rise and make producing products and services in the U.S. more competitive.
Quinlan says the U.S.'s $1 trillion-plus deficit, reflecting the "trifecta" of President George Bush's tax cuts, entitlement spending and wars, poses the biggest threat to the nation's well-being, unless politicians stop squabbling and implement effective policies.
"It's D.C. that keeps me awake at night," he says. "And we're running out of time."
Quinlan expects Europe to muddle through its current debt crisis. And he says the possibility of a hard economic landing in China is small, although the country is building too many "bridges to nowhere" and ineffectively deploying its capital.
Quinlan worries about the looming threat of "deglobalization," the prospect that financial institutions isolate themselves instead of supporting the global capital flows that have powered the world economy in recent decades. He points to Bank of America's divesting assets in Canada and other countries, as well as retrenchments by European banks.
He's similarly concerned about threats to erect trade barriers—for example, U.S. presidential candidates promising to retaliate against China for its perceived currency manipulations—as their economies stumble.
In fact, that's where Quinlan sees the greatest threat of inflation. "If we shut our borders and make our own sneakers, prices for those sneakers will go up," he says.
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