RIO DE JANEIRO, Brazil — When stock markets across the globe fell like dominoes last week on fears of a U.S. recession, it begged an important question: Hasn't the global economy grown less dependent on the United States as its main engine?
Plunging global stocks suggested that the answer is no.
As fears subside and stock markets rebound, important developing nations such as Brazil seem to have weathered the storm well. Thanks to China, they've been able to withstand a U.S. downturn, at least partially.
"Today, the global economy has two motors — China and the U.S.," said Welber Barral, trade secretary at Brazil's Ministry of Development, Industry and Foreign Trade. "There's been a diversification away from depending just on the United States."
This is an upside of globalization, which Americans more often associate with lost jobs and unfair competition. But the fact that other countries are no longer as economically dependent on the U.S. economy as they once were matters to ordinary Americans.
Here's how. If the global economy slumps in tandem with the U.S. economy, that would be terrible news for U.S. exports, which have grown by 12.3 percent to $1.48 trillion over a 12-month period ending in November 2007.
A strong global economy matters to Americans because exports arguably have kept the United States out of recession by offsetting the effects of the worst U.S. housing market since the Great Depression. Exports accounted for 12 percent of U.S. economic activity in the third quarter of 2007, the Commerce Department reported this month, about double the importance some economists say exports play in China's economy.
"You can make a case that the U.S. economy is more export-led than China's," joked Albert Keidel, a former top Treasury Department expert on China and now a scholar at the Carnegie Endowment for International Peace.
A global economy that's averaged 3 percent annual growth since 2000 explains why Peoria, Ill.-based Caterpillar Inc., the world's largest maker of construction equipment and engines, Friday reported an 11 percent drop last year in U.S. machinery sales but 8 percent growth in sales globally.
Caterpillar's vice president, Kent Adams, credited "growth driven by our global presence" for record revenues in 2007.
A decade ago, when the U.S. economy sneezed, Brazil and other developing nations caught colds. In 1999, Brazil's exports to the United States totaled $10.7 billion, and its exports to China were a miniscule $676 million.
Now, Brazilian trade data for 2007 show its exports to the United States totaled $25.1 billion, more than twice the value of 1999, and its exports to China had mushroomed to $10.7 billion.
"It's a completely different picture than it was just 10 years ago," said Ricardo Cotta, an executive with the Agriculture and Livestock Confederation of Brazil. "We're much better prepared for an American crisis than before."
That's because of China. Over the past decade, China's booming economy has devoured soybeans, minerals and a vast range of other commodities and fueled economic expansion all over the world, especially in Brazil and Argentina.
Many of the resources exported to China help create the consumer goods that China exports to wealthy North America and Europe. But Carnegie's Keidel believes that exports accounted for only four percentage points of China's 11.4 percent growth last year. Much of what China buys from the world meets the needs of China's sizzling domestic market.
Global economic growth has led record trade surpluses and swelling foreign reserves in countries that long had been economic basket cases. It's an historic shift, because during prior U.S. downturns countries had most of their eggs in one basket and suffered hyperinflation, capital flight and investor panic.
"Our direct links to the U.S. crisis are relatively small," said Daniel Artana, an economist in Argentina, where exports to China for the first nine months of 2007 totaled $4.6 billion and exports to the U.S. about $4 billion. "Argentina is much better prepared this time, although not as well-prepared as I would like."
Since August, when the U.S. economy began bucking headwinds from the sagging housing sector and turmoil in credit markets, economists have debated the degree to which the so-called BRIC nations — Brazil, Russia, India and China — are insulated from problems in the United States.
As the world's hottest economy, there's little fear that China, with foreign reserves of $1.4 trillion, can't withstand a U.S. slowdown.
"China is not short of money," said Andy Xie, an independent economist in the Chinese financial capital of Shanghai.
Road-building and property development should keep demand for iron ore from South Africa and other building materials soaring, said Xie, predicting a U.S. recession would shave less than 1.5 percentage points off of China's growth rate.
And Russia is bursting at the seams with earnings from oil and natural gas, leaving the energy-rich nation well positioned to plow ahead despite a U.S. slowdown.
It's less clear whether other expanding economies such as Brazil's, South Africa's, Mexico's and Turkey's, have become decoupled, or independent, from the U.S. economy.
"The strong reason for thinking there might be decoupling is that some of these big economies have a lot of internal momentum, and they have a lot of foreign exchange reserves," said Gary Hufbauer, a leading trade expert and researcher at the Petersen Institute of International Economics.
He's skeptical, however, that the world economy won't suffer if the U.S. economy falls into recession. That's because demand for commodities and natural resources would fall, China's appetite notwithstanding. And this could drag down global prices that have allowed developing nations to become wealthy in recent years.
"You don't need much of a slowdown in growth to get pretty big drops in commodity prices . . . and this will have particular impact on Latin America," said Hufbauer, adding that most of the world still trades heavily with the United States. "My bottom line is the decoupling thesis is for the future."
Tim Johnson contributed from Pakistan, McClatchy special correspondent Fan Di from Beijing. Kevin G. Hall reported from Washington.
Comments