Robert Reich’s recent commentary on “Marketplace,” a public-radio business program, addressed the impact of the impending U.S. economic recession on emerging economies.
Gone are the days when, if the United States sneezed, emerging economies came down with a terminal case of pneumonia, noted the eminent economist who served as Labor Secretary in the Clinton Administration and currently teaches at Berkeley. Unlike previous business cycles, the rest of the world will actually shrug off a U.S. economic downturn. At least commodity exporters and such newly developed economies as China will. Oil exporters in the Middle East and elsewhere are flush with petrodollars and China has what Reich calls sino-dollars. All those countries continue to invest and employ their workers, regardless of what happens in the United States. Investment in emerging economies, Reich pointed out, has been growing at double-digit rates in inflation-adjusted terms, compared to only around 1 percent in rich counties.
Reich painted a gloomy picture of those countries marching forward economically, leaving slumping America by the side of the road. With emerging economies powering ahead, commodity prices will remain elevated, stoking a continued boom in emerging economies while delaying an eventual U.S. business recovery.
There are other economists who believe that emerging economies no longer depend on the United States the way they used to. But their view is more sanguine. They believe that the ongoing boom in China and elsewhere will help the United States recover. They will keep buying American goods, especially if the dollar continues to weaken. Over the next five years, the Chinese government plans to spend $100 billion on its railways, while India has earmarked nearly half a billion dollars for infrastructure projects. Saudi Arabia plans to spend a cool $1 trillion in the next decade and a half.
This should shield U.S. construction equipment manufacturers, for instance, even if the U.S. construction industry remains in the doldrums. Fred Bergsten, who heads the Peterson Institute for International Economics in Washington, D.C., believes that emerging economies could mitigate the impact of the internal recession at home.
Still Pretty BigBut this is not a universal view among economists. Many of those, who worry about the impending U.S. downturn, come from India, China, Russia and other emerging markets. They presumably know their domestic situation better.
Indeed, in Asia minus Japan, exports accounted for 55 percent of regional GDP last year. The region is more heavily dependent on the export sector than it was at the start of the decade, when only 40 percent of its GDP came from exports. The United States accounts for 20 percent of world imports. It consumes nearly one-third of the world’s oil. Asian exports have become more diversified, and trade among neighbors now accounts for the largest proportion of the region’s trade ever. Still, Asian countries rely on the United States for 17 percent of their exports — or for 8 percent of their GDP.
The United States alone makes up 22 percent of world GDP. U.S. consumers bought $9.5 trillion worth of goods and services last year. Consumers in China and India, whose combined population is nearly 10 times as large as that of the United States, spent just $1.7 trillion.
Dangerous InvestmentIn March, Marketplace ran a series of shows from Dubai, one of which described how China now dominates trade in goods with the Middle East. The bilateral trade increased tenfold over the past decade, and petrodollars from the Gulf have been used to improve port infrastructure in China. Chinese goods are now increasingly trans-shipped through Dubai to other parts of the Middle East and Africa.
The moral of the report, however, was not so much how such trade flows are expanding but how little the United States participates in this trade.