Export led growth policy will not work anymore

[GoFlyKiteNow]

World can no longer rely for growth on free-spending Americans
20 Aug 2009, 0235 hrs IST, Robert J. Samuelson,

Before we get too giddy about any US economic “recovery,” we should remember that the preceding economic collapse was global. No recovery
can succeed unless it, too, is global. Will that happen? The world can no longer rely for growth on free-spending Americans, who are overburdened by debt and sobered by trillions of dollars of losses on homes and stocks. Without a substitute for American buying, any global revival will be feeble, because the United States needs export-led growth and other countries must somehow offset their lost sales to our market.

Developing countries would seem to be the obvious replacement for American spending as the world’s economic motor. These countries already account for nearly half of global economic output, estimates the International Monetary Fund. China (11.4 percent), India (4.8 percent) and Brazil (2.9 percent) alone represent nearly a fifth. By comparison, the United States is also a fifth.

All these societies have huge needs for housing, consumer goods, health care and more. Except as a job creator, export-led growth doesn’t make much sense. Logically, these countries should produce more for themselves and less for export. Stronger domestic spending would also increase their demand for imports. As a result, the United States would export more and import less. What economists call “global imbalances” - big US trade deficits matched by big surpluses in China, India and elsewhere - would shrink. World economic growth would revive. Problem solved.

Sounds reassuring. Still, there's room for skepticism. If Americans are spending less and saving more, then a balanced global economy requires people elsewhere to spend more and save less. That's the permanent fix, not repeated bursts of temporary economic "stimulus." The large trade imbalances fundamentally stemmed from high saving rates, especially in Asia, that dampened domestic spending and encouraged export-led growth. In 2008, China’s saving rate was an astounding 54 percent of GDP, Hong Kong’s 35 percent and Taiwan’s 28 percent, reports economist Eswar Prasad of Cornell University. The US saving rate, including both households and businesses, was 12 percent of GDP.

 

[newyorker88]

World can no longer rely for growth on free-spending Americans
20 Aug 2009, 0235 hrs IST, Robert J. Samuelson,

Before we get too giddy about any US economic “recovery,” we should remember that the preceding economic collapse was global. No recovery
can succeed unless it, too, is global. .

Americans if stop spending, the whole world will collapse. And if Chinaman dont want USD, the world will collapse too.

 

[GoFlyKiteNow]

Americans if stop spending, the whole world will collapse. And if Chinaman dont want USD, the world will collapse too.

There are over 200 nations that want the US dollar.
So if China does not want it, it makes no difference to the world economy.
It is not going to collapse the world economy.

 

[bryanlim1972]

Americans if stop spending, the whole world will collapse. And if Chinaman dont want USD, the world will collapse too.

you serious ah? you really think without the US and USD the world will collapse??

HAHAHAHAHAHAHAHAHAHAHHAHAHAAHAH

 

[GoFlyKiteNow]

Note: I did not use the word "collapse". Someone else did.

As I have always maintained..the US economy drives the world economy, no other country can replace it..

China has been overhyped as a major power that will replace USA.
It cannot..because it depends on USA for its growth as is evident
from the recent financial crisis.

Even to park its reserves, China need USA to park its savings and reserves.
No other country can absorb Trillions of dollars.
And also offer gaurantee and safety for the money.
Simple as that.

 

[longbow]

I agree, countries that are export driven like Germany, japan and Korea will be impacted. Contrary to what most believe, consumption form a large percentage of China's GDP. Do you know that China exports less then Germany?

China has a population of 1.4B vs 80 million in Germany and compare the land mass. So basic internal consumption (food, water, energy, medical, travel) would be huge compared to Germany.

On top of that there are probably 40 million Chinese with the same affluence as the typical German and they can spend just as much as the Germans.

So if you take into account that China exports less than Germany but yet has a much higher internal consumption .....

The term middle class is a misnomer. The income range is usually very wide. Why not just look at car sales. I assume that if you can afford a new car vs motorcycle you are at the door of being a lower middle class. Just look at car sales in China, it is number 2 in the world and catching up on the US. And we are not talking about micro cars. Chinese consumers are going after the Buicks, VW Jetta, Toyota Camry.

Finally just go look at the number of Louis Vuitton shops in China - these are all signs of a consumer based society. Read that Rolls Royce's second largest market is China. after the US.

As far as US$ is concerned, it relevance will continue. But I would not be surprised if there is a move to another form of currency as China's GDP (and its domestic consumption) increases over the next 20 years.

As China tries to diversify out of its US$ reserves, we can see Chinese dominance in Oil - Chinese oil companies already hold more reserves than Exxon/Mobil and they are growing at tremendous rate and many other natural resources are the same.

With regard to Chinese overtaking US economy - yes there is a lot of hype in that. But all it takes is for 100M Chinese to reach US per capita income and the GDP from the rest of the 1.3B will push their economy over that of the US.