Saturday, October 20, 2012

Does Growth In The East Depend Upon Consumption In The West?

This article looks at the contribution of the west and the east to economic growth during the Great Recession.  China and other eastern economies have contributed more to growth than those in the west.  This suggests less dependence of exports to the west than one might expect.  It is fairly clear, however, that the German economy has benefited from exports to the east more than the US which has been consuming output from the east.  Germany seems to be making products that it can sell to the east.  Outside of weapons, financial services and agricultural products, the US does not have much to sell to the east to pay for its imports. China buys lots of iPhone's but they are not exported from the US. They are made in China, consumed in China, and exported from China to the rest of the world. That is a big reason for US trade deficits.  We pay for our imports with borrowed money instead of by exporting.

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