In reading this gloomy column from Gary Shilling at Bloomberg on the prospects for overseas economies in the coming year and how that might affect the U. S. economy one question occurred to me. Do economic problems flow symmetrically from net exporters to net importers? When China gets a cold, does the U. S. sneeze?
I think it’s possible that the importer (us) is inoculated somewhat against the problems of the exporters (them). But I really don’t iknow. I know the question but not the answer.
Thoughts?
It depends on how both the importer and exporter react to the downturn. If we assume China’s growth slows considerably due to domestic factors it may enact further subsidies so as to boost its exports and regain employment growth. In the case of the United States this would result in an increase in the trade deficit, draining net financial assets out of the economy. It would also increase total outstanding international debt and, of course, rising interest payments.
Wynne Godley’s work suggests that under certain conditions this can actually tip the economy toward recession, at which point positive feedbacks would take over and accelerate the process.
This doesn’t directly address your question, but it’s short and might aid as you think about the subject:
http://www.levyinstitute.org/pubs/sa_dec_08.pdf
That are also, in effect, paying us to buy their stuff. Many of the trade warriors often want to emulate China…i.e. they want to pay people in other countries to buy our stuff to somehow make us better off. I’m still trying to figure out how that works, but apparently they are convinced it does.
@Steve Verdon,
This is one area where some of us have broken ranks with MMT. The founders of the school insist trade deficits are meaningless because the U.S. can just print enough to cover the financial leakage going overseas. We agree with Godley that papering over the problem actually worsens the deficit and leads to erosion of the country’s productice capacity. China is, in fact, expanding its money supply rapidly (17% last year alone) and using it as you say, to pay foreigners to buy their products. It’s created a lot of jobs, but now they’re dealing with serious inflation because of it, not to mention their utter reliance on the good will of others for growth.