Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:


High Demand for Goods in the U.S. Is Not the Problem


A reduction in U.S. consumption, increased savings and the adoption of flexible exchange rates in Asia would trigger global instability, according to a Conference Board analysis released today.

Says Gail Fosler, Executive Vice President and Chief Economist of The Conference Board: “Not only would these actions not have the intended effect but they would add to global instability and further slow an already disturbing slowdown in long-term global growth.”

The analysis appears in the latest issue of StraightTalk, a newsletter prepared by Fosler for The Conference Board’s global business network.

When Traders Head Out The Door

Despite a rapid expansion in wealth by such fast-growing economies as China and India, the global economic growth in the 1990s was the slowest in 40 years. Financial instability, volatile exchange rates and their costs in emerging markets all played a role in slowing world economic growth. “Given the size of global financial flows,” Fosler points out, “there is almost no reasonable trade or foreign exchange policy that can protect these countries’ currencies when traders run for the door.”

Global Markets Are Becoming Increasingly integrated

National borders are becoming less important in analyzing trade and other economic activity, since global markets are increasingly integrated in the same way that national markets are.

“Transactions are increasingly based on complex intra- and inter-company relationships,” says Fosler. “Multinational companies are like bees in the spring, spreading technology from country to country.”

Although the U.S. trade deficit has been running at 5% to 6% of Gross Domestic Product, many of the dynamics surrounding global trade today have been around for many years. They simply accelerated in the 1990s. Today, cross-border trade is almost 50% higher in volume terms than global GDP.

U.S. imports have always been greater than exports, whether the dollar is high or low or whether there is a federal budget surplus or deficit. The U.S. will continue to be the major market for the rest of the world – indefinitely.

Specialization and regional growth opportunities trump comparative labor and resource cost advantage, as companies develop centers of excellence around high technology products and components. The workings of competitive markets drive costs down – even, in some sectors, in very low-cost environments like China. But cost is only one part of the equation.

Some countries, such as Japan and Germany, grow faster than others more because of the advantages of the institutional and regulatory structures in their own domestic markets than because they enjoy relative advantages with regard to trade.

“Trade is like a card game against the house,” says Fosler. “Either you are in or you are out. But no matter your skill, it is very difficult to walk away with big winnings on a consistent basis.”

Much of what is recorded as global trade represents only those economic relationships that cross national borders and are counted in customs receipts. In a sense, this is the narrowest definition of trade. The balance on goods and services includes tourism and important service industries, but it does not capture intermediate services within a company, which may involve offshoring, or the cross-border creation of intellectual property – which is often carried over the Internet or through the mail.

Global economic relationships are increasingly based on value propositions and core capabilities that are not particularly price-sensitive. They often represent long-term relationships in which knowledge and trust develops between the supplier and the customer.

Capital Goods Flows Just As Important As Consumer Spending

Capital goods dominate cross-border transactions, with industrial machinery and office equipment and telecom ranking number one and number three, respectively. In 2003, these two categories accounted for almost 30% of total cross-border trade. When non-oil materials and chemicals (another 13.5%) are added, it becomes clear that cross-border global trade patterns have as much to do with investing as with consuming.

Consumer spending in the U.S. is about 70% of GDP. In emerging markets, by contrast, investment can be relatively large – in China, fixed investment is almost 45% of GDP. Even more striking is how these kinds of domestic market imbalances evolve. During global recessions, U.S. domestic demand shoots up as a share of global domestic demand. In other words, the U.S. is the fundamental counter-cyclical stimulus that helps the rest of the world get back on its feet again. But the stimulus from the U.S. appears to have had little effect on creating sustained domestic demand growth in the rest of the world.

The U.S. may not be the only market of “first resort” for long. As Europe expands its global reach, particularly in Asia, and as the euro becomes more of a global currency, Europe’s trade balance will likely erode, says Fosler.

“Unless the decade reverses the tendency toward economic instability and slowing global growth, it would appear that it is the structure of the global economy that is unbalanced, not just the U.S. trade accounts,” concludes Fosler.

Source: StraightTalk, Volume 16, No. 3, The Conference Board

The Conference Board’s Mission

The Conference Board creates and disseminates knowledge about management and the marketplace to help businesses strengthen their performance and better serve society. Working as a global independent membership organization in the public interest, The Conference Board conducts conferences, makes forecasts and assesses trends, publishes information and analysis, and brings executives together to learn from one another. The Conference Board is a not-for-profit organization and holds 501(c)(3) tax-exempt status in the United States.

| newswise
Further information:

More articles from Business and Finance:

nachricht Blockchain Set to Transform the Financial Services Market
28.09.2016 | HHL Leipzig Graduate School of Management

nachricht Paper or plastic?
08.07.2016 | University of Toronto

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Light-driven atomic rotations excite magnetic waves

Terahertz excitation of selected crystal vibrations leads to an effective magnetic field that drives coherent spin motion

Controlling functional properties by light is one of the grand goals in modern condensed matter physics and materials science. A new study now demonstrates how...

Im Focus: New 3-D wiring technique brings scalable quantum computers closer to reality

Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.

"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...

Im Focus: Scientists develop a semiconductor nanocomposite material that moves in response to light

In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.

A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...

Im Focus: Diamonds aren't forever: Sandia, Harvard team create first quantum computer bridge

By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.

"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...

Im Focus: New Products - Highlights of COMPAMED 2016

COMPAMED has become the leading international marketplace for suppliers of medical manufacturing. The trade fair, which takes place every November and is co-located to MEDICA in Dusseldorf, has been steadily growing over the past years and shows that medical technology remains a rapidly growing market.

In 2016, the joint pavilion by the IVAM Microtechnology Network, the Product Market “High-tech for Medical Devices”, will be located in Hall 8a again and will...

All Focus news of the innovation-report >>>



Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

Agricultural Trade Developments and Potentials in Central Asia and the South Caucasus

14.10.2016 | Event News

World Health Summit – Day Three: A Call to Action

12.10.2016 | Event News

Latest News

Oasis of life in the ice-covered central Arctic

24.10.2016 | Earth Sciences

‘Farming’ bacteria to boost growth in the oceans

24.10.2016 | Life Sciences

Light-driven atomic rotations excite magnetic waves

24.10.2016 | Physics and Astronomy

More VideoLinks >>>