Europe, Japan Wean Themselves From Dependence on U.S. Consumers
By Shobhana Chandra and Matthew Benjamin
Sept. 25 (Bloomberg) -- Europe, Japan and emerging economies around the world are weaning themselves from dependence on the American consumer, and economists say it's just in time.
Demand in the world's largest economy is slowing as the U.S. housing market falters, a development that the International Monetary Fund on Sept. 14 called a key risk to global expansion. If so, it's a risk that the biggest exporting nations are better prepared to weather now than five years ago.
``Domestic demand in so many other parts of the world is picking up,'' says Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London. ``If there ever was a good time for the U.S. to slow, this is it.''
The share of global exports purchased by U.S. consumers and businesses fell to 17.9 percent in 2005 from 21.8 percent in 2000 as demand increased in the European Union, Japan and emerging markets in Asia and Eastern Europe. Exporting nations in Europe and Asia are poised to grab a larger share of world markets with trade agreements that don't include the U.S.
The European Union said Sept. 9 it will seek bilateral trade deals with China and South Korea. In August, Japan proposed a 16- nation economic bloc, including 10 Southeast Asian nations, China, Japan, South Korea, India, Australia and New Zealand.
``That will expand trade amongst these countries at the expense of trade with the U.S.,'' says Michael Mussa, a former International Monetary Fund chief economist who's now with the Institute for International Economics in Washington.
Largest Drivers
Of course the world is nowhere near becoming immune to the ups and downs of the U.S. economy, says Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina. ``The U.S. is still one of the largest drivers of growth,'' Bryson says. ``We're probably decades away from people saying the U.S. won't matter.''
The U.S. remains the biggest importer by far, buying $1.7 trillion in goods and services from the rest of the world last year, more than double the amount that second-place Germany took in, according to the Economist Intelligence Unit, a London-based research company.
Still, says Joseph Stiglitz, a Nobel laureate economist who teaches at Columbia University in New York, ``the U.S. is no longer the single pivotal player to world trade that it was, because China and India and other nations have become a major part of the engine of global growth the past five years.''
The 2001 U.S. recession struck a blow to the rest of the world. Taiwan's economy contracted 2.2 percent that year, its worst slump on record, as exports tumbled. The economies of Japan, Singapore, Malaysia and Thailand were hurt too. Recessions in Argentina and Mexico deepened, while growth in Germany and Italy slowed.
U.S. Slows, Others Expand
Now, as the U.S. decelerates, other economies are expanding. U.S. economic growth is expected to slow to 2.6 percent in the final three months of 2006 from 5.6 percent in the first quarter, according to a Bloomberg News survey of economists. Growth in consumer spending, representing more than two-thirds of the U.S. economy, will slow to 2.7 percent from the first quarter's 4.8 percent gain.
The euro region is on track this year for the fastest growth since 2000, led by Germany, Europe's largest economy. Domestic demand in Japan is reviving after seven years of deflation, and China's economy grew in the second quarter at the fastest rate in more than a decade.
``It is better for the U.S. not to be in a dominating position, and to have other countries rising faster,'' says Robert Kuhn, a senior adviser to Citigroup Inc. in New York and the author of ``The Man Who Changed China: The Life and Legacy of Jiang Zemin.'' ``Diversification will make the system more robust.''
China's Trade
China including Hong Kong has in the last three years overtaken the U.S. to become Japan's and South Korea's biggest trading partner. The share of Japanese exports purchased by the U.S. dropped to 22.9 percent last year from 30.1 percent in 2000. Some Japanese shipments to China, though, were unfinished goods ultimately destined for U.S. consumption.
Similarly, the proportion of European Union exports going to the U.S. declined to 7.9 percent last year from 9.1 percent in 2000. While important to trade for the 25-nation EU, the U.S. has lost its preeminence there, says European Central Bank President Jean-Claude Trichet.
``As regards trade links, the United Kingdom is more important for the euro area than the United States,'' Trichet said in an Aug. 31 interview. ``It also means that for the United Kingdom, the euro area is much more important than the United States.''
The picture is similar in Asia. The U.S. share of Asia's exports fell to 19.7 percent last year, from 24.5 percent in 2000.
``Intra-Asia trade for sure is expanding rapidly and Europe- China trade is booming,'' says Fred Bergsten, director of the Institute for International Economics in Washington.
Trade Talks
The stalemate in world trade talks may lead to an even faster proliferation of bilateral and regional free trade agreements. A new World Trade Organization deal to lower tariffs and open markets would have pumped at least $96 billion into the world economy, according to World Bank estimates. Its July collapse means a major pact among the 149 WTO members is unlikely before 2009, says Carlos Braga, senior trade adviser with the World Bank in Geneva.
The U.S. has signed deals with countries including Morocco, Nicaragua and El Salvador in an attempt to pressure WTO members into a worldwide agreement, a strategy former U.S. Trade Representative Robert Zoellick termed ``competitive liberalization.'' It hasn't worked, says Jagdish Bhagwati, a Columbia University economics professor and former WTO adviser.
`Piffling' Agreements
While the U.S. is lining up ``piffling little bilateral agreements,'' says Bhagwati, ``Asian free trade agreements are breaking out rapidly, and the U.S. is not part of it.''
A major Asian trade deal excluding the U.S. would divert $25 billion from U.S. trade in the first year and more over time as investment patterns change, says Bergsten. ``That is already motivating the U.S. to beef up its own free trade agreements and perhaps try to go back to the WTO with a better offer,'' he says.
Demand building in developing nations is a major driver behind changing trade routes.
The so-called BRICs economies, Brazil, Russia, India and China, account for about 30 percent of world growth in the past five years, says O'Neill of Goldman Sachs.
``Domestic demand in so many parts of the world is picking up, and that's the biggest driver of world trade,'' O'Neill says. ``As the BRICS become bigger, the world's exporters export more to them and less to the U.S.''
To contact the reporters on this story: Shobhana Chandra in Washington
[email protected] ; Matthew Benjamin in Washington at
[email protected]
Last Updated: September 24, 2006 19:08 EDT
