The weaker peseta would stimulate demand for Spanish exports and reduce Spain s imports, which would boost domestic demand and reduce unemployment.

In the US, the weak dollar will be a powerful boost to net exports, and thus to aggregate demand.

But, with budget tightening around the world, demand for Asia s exports is expected to continue to falter.

Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

Indeed, China s 12th Five Year Plan is aimed at reducing dependence on exports and boosting domestic demand.

That is consistent with the Five Year Plan s goal of basing GDP growth more on domestic demand and less on exports.

Growth was broadly based in most countries, and manufacturing, in particular, benefited from the upturn in the electronics cycle and strong export demand.

Meanwhile, the faltering European economy and slowing GDP growth in China and elsewhere are impeding export demand.

To escape the crisis, Germany used rapid export growth especially to meet voracious Chinese demand.

But this restructuring will tend to reduce, not increase, import demand, as exports and investment are much more import intensive than consumption.

In the late 19th century, world demand for cocoa tied the economy to commodity exports and led to migrations from the highlands to the agricultural frontier on the coast.

Its future growth will have to be based more on domestic demand than on exports, which will require increases in consumption.

It is necessary because persistently weak global growth is unlikely to provide the solid external demand for Chinese exports that it once did.

When production exceeds domestic demand, producers are compelled to expand exports, creating an export oriented, capital intensive industrial structure that supports rapid economic growth.

Private and public deleveraging can hardly take place at the same time, unless trade partners generate demand for exports.

And yet reliance on external demand remains fundamentally unchanged, even as the contribution of net exports to GDP growth has turned negative.

Indeed, three quarters of Canada s exports go to the US, while foreign demand accounts for a quarter of its GDP.

Despite all the talk about the coming shift to internal demand, China remains heavily dependent on exports and external demand as major drivers of economic growth.

But 2006 turned out to be a good year for growth in Europe, as surprising strength in exports sparked unexpected increases in domestic demand.

That implies a potential boon to Russia s main gas producers, especially as Europe s energy diversification campaign weakens export demand.

Strong demand growth in Japan and Europe that produces a higher level of American exports would be the most powerful pro trade liberalization force imaginable.

When such demand falters, developing countries find themselves with collapsing export prices, and, too often, a protracted domestic crisis.

However, as we saw in 2004 and 2005, exports are not enough to create substantial growth if domestic demand does not follow.

Export controls

The government had become too dependent on a non renewable resource, and therefore did little to deepen or widen the tax base. Moreover, the manufacturing sector had become too dependent on US driven export demand, and the population had become too dependent on remittances from emigrants working in the US.

As they prepare for the coming Chinese slowdown and seek to minimize the risk of regional destabilization, Asian economies must strengthen domestic demand and reduce excessive reliance on exports to China.

The news is better on the export side.

Export Controls Legal Regime

An important victim will be Japan, where anemic real income growth is depressing domestic demand and exports to China sustain what little growth there is.

Exchange rates should be realigned in a coordinated fashion to stimulate exports from deficit countries and import demand from surplus countries.

But now growth rates for Chinese exports and related indices in manufacturing have fallen, largely owing to weak external demand, especially in Europe.

Since exports and investment account, respectively, for 30 and 40 of China s GDP growth, its economy is particularly vulnerable to weakening external demand and accumulation of non performing loans caused by excessive and wasteful spending on fixed assets.

Given the current turmoil in the Middle East, the loss of Libyan and Yemeni oil, and increasing energy demand in the oil producing countries, any increase in Saudi oil exports, if any, would have a limited impact on the market.

The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency. Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

Policies aimed at ensuring export led growth also include export subsidies and barriers to imports.

And countries, like China, that rely excessively on net exports for growth should accelerate reforms, including more rapid currency appreciation, in order to boost domestic demand and consumption.

Unfortunately, as China has already claimed a large share of the world s merchandise exports (10.4 in 2010) and economic stagnation in the West is constraining external demand, this strategy can no longer work.

But what distinguishes India from other emerging economies, in particular China and the Southeast Asian countries, is that domestic demand, rather than exports, is the primary driver of growth.

Today, however, the catalytic power of Deng s initial changes has waned, with rising wages, weakening external demand, and increasing competition from other emerging economies indicating the exhaustion of a growth model premised on exports and investment.

The Import of Exports

Export control

Exports

Japan accounts for only 5 of America s exports and 8 of China s.

Energy demand

So long as external demand holds up and recent growth numbers from China and the US are positive in this regard Europe s exports should continue to perform well.