Mar 9th 2015
A month ago, I wrote a blog post about struggles of Chinese factories, arguing that China would soon recover its recession although its factories and industries have hard time because of significant decrease in the demand. I explained that China’s huge market power would influence on the global economy as well as its own economy so that China would have higher growth rate this year, fully escaping from the impact of the crisis. However, on Mar 8th, Wall Street Journal predicts that the improving U.S. and stabilizing Europe would cancel out the negative effects brought from the Chinese bad economy. From the article titled “Signals from U.S., China Show How Much Global Economy Has Shifted since Crisis,” Wall Street Journal describes the mismatch between China and the U.S., which is different from my previous perspective, and even contradicts my argument.
The U.S. economy is getting better with the augment of job gains while Chinese authorities are struggling to manage a gathering slowdown. Furthermore, the positive change in the U.S. job market increases the possibility that the Federal Reserve will raise the short-term interest rates. But, at the same time, the People’s Bank of China adds to a rate-cutting campaign, making the gap in the price of each country’s currency bigger; the U.S. dollar approximately appreciate 2% against China’s yuan. So, Wall Street Journal questions that the U.S. economy can power the global economy the way it did in decades ago.
It is obvious that the U.S. has the outstanding outcomes while other major countries (such as Europe, China, Brazil and Russia) still struggle. According to New York Times, the U.S. is expected to grow in 2015 at its fastest pace in a decade. However, as Bloomberg says in the article “The U.S. Economy Is Strong, But Is It Strong Enough to Power the World?,” I also wonder about the actual influence of the U.S. economy on the global market. “The U.S. can marginally help the world, but it cannot do it alone,” said former Deputy U.S. Treasury Secretary Stuart Eizenstat.
I believe there are numerous factors that why the U.S. cannot boost the global economy by itself. First, the U.S. is the only one country which has “good” signals in its economy. Although the U.S. has the biggest economy in the world (besides European Union), it only takes about 18% of the whole economy. Second, EU and Japan face deflationary threats while China has the slowest growth rate. It is clear that slumps of other countries undermine the U.S. positive economic effects since the U.S. is also a part of the global community. Furthermore, people should be aware that the U.S. economy can be affected by other countries’ poor conditions; already the U.S. dollar appreciates because many investors put their money into the U.S.
In conclusion, I do not think that the U.S. government (or Federal Reserve) does its economic policy poorly nor the U.S. economic situation is actually really bad. But, I think people should not be so optimistic about the current U.S. economic situation, anticipating a jump of the global economy. Chinese economy is still struggling and we should recognize that its slump could take longer time while the Europe is trying to against the deflationary effect. Can the U.S. economy boost the world? I would say it is not enough although it can be a good trigger.