Esnsayo

CHAPTER

5

INTERNATIONAL TRADE
A ND FINANCE

O

ver the past year, global economic growth has slowed, largely due to a
range of challenges in the advanced economies. These adverse shocks
are, for the most part, unrelated to policies or business decisions undertaken
within the borders of the United States. Nevertheless, in an integrated global
economy, the United States cannot fullyescape their impact.
One could hardly begin with a starker example of an adverse shock
to the world economy than the massive earthquake that struck Japan’s
northeastern coast on March 11. This earthquake was the most powerful
to have hit Japan in recorded history, triggering tsunami waves that leveled
towns and claimed nearly 16,000 lives. Alongside the devastating human
toll, the disasteralso had a major impact on the Japanese economy. The
International Monetary Fund (IMF) estimates that the Japanese economy
contracted by 0.9 percent in 2011. The economic impact also extended far
beyond Japan’s borders. For months afterward, supply chains around the
world, especially in the automotive industry, were disrupted by production
slowdowns and parts shortages.
While Japan’s severeeconomic slowdown in 2011 was driven by
a natural disaster, those elsewhere in the developed world were largely a
product of forces outside of nature. Slow growth has exacerbated sovereign
debt and deficit problems in Europe, and austerity measures put into place
in response have impeded near-term growth in a number of euro-area
countries. In January, the IMF reported that the euro area’sgross domestic
product (GDP) grew 1.6 percent in 2011, down from 1.9 percent in 2010,
and predicted that the euro area would contract by 0.5 percent in 2012.
Growth in the United Kingdom has also slowed significantly, in part reflecting tight fiscal policies, and is estimated by the IMF to have been only 0.9
percent in 2011. With the European Union, Japan, and the United States
collectivelyaccounting for almost 60 percent of global GDP, slower growth

129

Figure 5-1
Real GDP Growth, 2000–2011

Annualized quarterly percent change
12
Emerging
10
markets
8
6
4

2
0
-2

United States,
European Union,
and Japan

-4

2011:Q3

-6
-8
-10
2002:Q1
2004:Q1
2006:Q1
2008:Q1
2010:Q1
Note: Weights come from each nation’s share of GDP within each aggregate.
Source:Country sources; International Monetary Fund, World Economic Outlook,
September 2011; CEA calculations.

in these economies was sufficient to lower growth at the global level in 2011,
as Figure 5-1 illustrates.
In the face of the broad-based slowdown in economic growth in the
developed economies, growth in emerging markets also decelerated.1 Slower
growth in import demand in the largeeconomies meant slower export
growth in emerging markets.2 For example, growth in China is decelerating
because of a decline in export growth as well as a slowdown in domestic real
estate investment. Although the IMF predicts China is likely to grow more
than 8 percent in 2012, its slowdown contributes to the loss of momentum
in global growth.
1 The growth slowdown in some emerging markets alsoreflected the impact of policy
tightening in some countries to prevent overheating. As the year progressed, concerns about
overheating tended to give way to concerns about the economic slowdown in the developed
countries.
2 The emerging markets aggregate in Figure 5-1 includes Argentina, Brazil, Chile, China,
Colombia, Hong Kong, India, Indonesia, Israel, Malaysia, Mexico, Peru, Russia,Singapore,
South Africa, South Korea, Taiwan, Thailand, Turkey, Ukraine, and Venezuela. Seventeen
member states of the European Union (the EU-27) use the euro. They are Austria, Belgium,
Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta,
Netherlands, Portugal, the Slovak Republic, Slovenia, and Spain.

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Chapter 5

Viewed in the context of these...