HeF

How the US Slowdown Is Slowing Down China

It is no longer as useful as it once was to measure the dependency of two economies by the amount of direct trade to each other. One of the consequences of globalization has been that products are produced and assembled in several coutnries before they are shipped to their final destination, so if, for example, China produces a widget, sells it to Japan, who paints it green before selling it to the US, the widget will not appear as a China sale to the US even though ultimately it is US demand that abosrbs Chinese supply.

One of the side-effects of globalization has been the seeming paradox that each country's exports to the US has declined as a share of total exports even while US imports are growing as a share of world GDP. The first fact seems to indicate that the world is becoming less dependent on the US consumer while the second suggests that the world is more dependent on the US.

I would argue that the latter is true, and increased trade specialization explains the former fact. If the US slows down, and espcially if there is a sympathetic slow down in Europe, I have little doubt that developing coutnries, especially those reliant on exports, are going to be seriously affected.

As an aside, Paultaut, we will need to see September and October figures before we can be confident that internal consumption can take up the slack. I suspect much of the July/August surge was Olympics related.