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WSJ: World Recession Is Pulling US Economy Down

WSJ: World Recession Is Pulling US Economy Down
(Dollar Photo Club)

By    |   Thursday, 03 October 2019 08:28 AM

As weakness from Germany to China intensifies, the U.S. economy is less insulated than in the past and is being pulled down by a global recession.

“From tariff-related tension to a German auto-emissions scandal and a Chinese credit squeeze, forces weighing on external economies have begun to wash back on the U.S.,” the Wall Street Journal explained.

“First, the rest of the world’s share of global gross domestic product has grown, primarily thanks to China. Second, trade has become a larger share of U.S. output, and foreign sales contribute a growing share of U.S. company profits. Thanks to fracking, oil and gas production has become a major component of U.S. investment, but it is highly sensitive to oil prices that, in turn, respond to global growth,” the Journal explained.

“A third reason is that integrated capital markets mean U.S. interest rates depend more heavily on conditions abroad. If foreign central banks ease, that can drive the dollar higher and tighten conditions for American manufacturers. That effect is likely even stronger with rates at or close to zero,” WSJ.com said.

The pain President Donald Trump’s tariffs have inflicted on other countries may have ricocheted back in the U.S. in the form of weaker global growth, which is weighing on U.S. investment and exports.

“The general uncertainty about global value chains and how those might restructure is having a big dampening influence in many countries,” said Maury Obstfeld, former chief economist at the International Monetary Fund.

He told WSJ.com  Germany is particularly vulnerable because it is the most trade-dependent big economy, and it also has “a huge target on its back with respect to auto trade.”

Trump has threatened to impose tariffs on imported German vehicles.

However, there are other factors as well. "Germany specializes in the export of autos and of machinery used to produce autos, and there’s a significant slump globally in auto demand, most obviously in China but also India,” says Brad Setser, an economist at the Council on Foreign Relations.

To be sure, global trade is forecast to weaken this year to the slowest pace since the depths of the Great Recession due to the U.S.-China trade war.

The World Trade Organization said Tuesday it expects volumes of traded goods to rise 1.2% this year, far below the 2.6% estimate it issued in April and the weakest since 2009.

The U.S. and China in particular are in a wide-ranging dispute that has led to new tariffs on hundreds of billions of dollars' worth of traded goods. There is little expectation of an imminent resolution to the disagreement, which continues to sap economic growth.

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As weakness from Germany to China intensifies, the U.S. economy is less insulated than in the past and is being pulled down by a global recession.
world, recession, us, economy
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2019-28-03
Thursday, 03 October 2019 08:28 AM
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