Don’t Forget India

In Xander Snyder’s post at Geopolitical Futures after assessing the likelihood of a recession in the U. S. he turns to considering the likely impact of an American economic downturn on our major trading partners. Here’s a sample of his remarks:

When the next recession comes – and it will – the United States should be able to weather the storm. Even if the contraction is particularly bad, say, 3 percent over the year, and is followed by a long period of deleveraging in which borrowers spend more time paying debt than investing, the country’s diverse economy and relative independence from exports will mitigate the effects of the recession. Times will be tough, but they won’t threaten Washington’s position atop the global order.

The same cannot be said for countries that need the United States to be economically healthy enough to buy their exports. One such country is Germany, which in 2016 exported 107 billion euros’ ($119 billion) worth of goods to the United States, accounting for 8.8 percent of its total exports and 3.4 percent of its gross domestic product.
Germany exports nearly as much (101.4 billion euros’ worth) to France and only a little less (86 billion euros’ worth) to the United Kingdom, two countries that have their fair share of problems too. France is struggling with stagnant growth, high unemployment and regional economic disparities. The United Kingdom’s economic future is likewise uncertain as it prepares for negotiations to leave the EU.

China depends even more heavily on the health of the U.S. economy than does Germany. Roughly 20 percent of Chinese GDP is generated by exports, nearly 22 percent of which go to the United States. In other words, 4 percent of its entire GDP rests in the hands of U.S. consumers. The government has imposed restrictions on its real estate market, which has begun to push home and development prices down. Since a large portion of the Chinese economy depends on its real estate market, Beijing must walk a fine line between growth and a real estate bubble. If its largest trading partner buys fewer goods, that line becomes even finer

I noticed that he hadn’t mentioned India, probably because its American imports and exports are relatively small, but I thought it might be worthwhile to remedy that omission. The following information was drawn from VCCircle, Trading Economics, the CIA Factbook, and Bloomberg.

Exports comprise about 19% of the Indian economy and a considerable portion of its exports are in the form of software and IT-related services and remittances and somewhat more than half of that can be attributed to the United States. All in all exports to the U. S. and remittances from the U. S. account for 5-7% of the total Indian economy.

That’s a tiny amount of the U. S. economy. In other words like Germany or China we are much more important to them than they are to us and an economic turndown here will have serious consequences for the Indian economy. What those consequences are depend on what you think would happen in the event of a recession here. If you think that our imports of services from India would decline sharply, the impact on India could be quite severe. If you that our imports of services from India would increase as corporations sought to cut costs, a recession here could help the Indian economy.

There’s some reason to believe that a recession here wouldn’t have much effect on India’s economy one way or the other. That graph at the top of the page is somewhat misleading. When you consider Indian service exports taking into account the exchange rate between the dollar and the rupee and inflation, most of the 7% year-on-year increase that India saw in 2016 vanishes and, indeed, they have been pretty flat for the last decade.