Around the Markets: Europe and Asia might not Weather a U.S. Slowdown

By: Michael R. Sesit (Bloomberg News)

Published: March 19, 2007 in the International Herald Tribune

This article is about the interconnectivity of the global markets. Basically it discusses how much the US economy affects other countries’ economies. While other countries are coming into their own despite the US slowdown in growth, currently the world still depends heavily on the U.S. consumer.

“The global economy is too dependent on exports to the United States, whose trade deficit was $765.3 billion in 2006, as Asia and Europe do not have enough domestic demand to offset a cut in U.S. spending on imported goods,” said Stephen Roach, chief economist at Morgan Stanley in New York.

“The United States accounts for 24 percent of Japan's total exports, 84 percent of Canada's, 86 percent of Mexico's and about 40 percent of China's,” he said.

“Just as China is dependent on the United States, other countries rely on China's economy. So a U.S. slowdown that hurt China would reverberate in Japan, Taiwan, South Korea and commodity producers like Russia, Australia, New Zealand, Canada and Brazil.”

This is an important issue in globalization because some argue that the interconnectivity of global economies has made us economically weak. Economists tend to support that view. While most counties have greatly benefited from globalization, we have opened ourselves up to a level of vulnerability, which was never possible before.