Emerging market downturn to have rising impact in U.S.
Emerging market downturn to have rising impact in U.S.
WASHINGTON (Bloomberg): The financial downturn that has spread from Asia through Russia and into Latin America will have a rising impact on U.S. economic growth as exports slow and confidence sags, U.S. Trade Rep. Charlene Barshefsky said Wednesday.
The widening recession in emerging market nations constitutes "the most dangerous financial crisis the world has faced in 50 years," Barshefsky told the annual meeting of the National Assoc. of Business Economists (NABE), echoing a message U.S. President Bill Clinton has delivered in recent weeks.
While the flight of investment capital from Asia and other emerging markets is "obviously devastating for the countries directly affected ... we will see here an exacerbation of the current trend" of slowing exports and faltering confidence in financial markets and the business environment, Barshefsky said.
"Two out of five cargo containers leaving the Port of Los Angeles leave empty," highlighting sagging demand for U.S. manufactured exports, Barshefsky said. Overall U.S. exports fell US$14 billion in the first 8 months of this year, from the same period last year. Exports to Japan are down 12 percent and exports to Indonesia have fallen 70 percent, she noted.
A casualty is "rapidly declining" farm incomes in the U.S., where farmers count on international markets for 25 cents of every dollar of income. U.S. farm exports to Asia in the year ended Sept. 30 fell 17 percent to $19.6 billion from $23.8 billion in the year ended Sept. 30, 1997.
In this context, the administration's top priority must be to persuade Congress to approve the $17.9 billion requested by the Clinton administration to fund the International Monetary Fund, the lender of last resort to economies in crisis, Barshefsky said. "It is critical that Congress approves the president's full request to re-fund the IMF."
Heat on Japan
While the U.S. has an urgent role to play, Japan, the world's second largest economy, has an "equally important" task in boosting the world economy, she said. That refrain has resounded in conference rooms and corridors of power here this week amid the annual meetings of the IMF and World Bank.
"Japan must apply sustained and substantial fiscal stimulus for domestic demand, it must clean up its banking system ... and deregulate and open its markets," so it can play a vital role as the economic engine that pulls Asia from recession, Barshefsky said. "If Japan does not recover, Asia does not recover."
As the U.S. trade deficit mounts -- and it's on track to hit a record $158.6 billion this year -- "we must refuse to panic, we must refuse to cut ourselves off" from the global system of free trade, she said. To throw up protectionist barriers at this stage, Barshefsky said, would be to invite "global depression."
Rather, she said, the U.S. must continue to lead in forging new market-opening agreements with its trading partners, including a proposed Free Trade in the Americas Agreement that would extend the North American Free Trade Agreement (Nafta) to Latin America.
The U.S. also hopes to forge new agreements to open markets for energy, telecommunications and medical equipment, among other goods, within the Asia-Pacific Economic Cooperation forum, Barshefsky said. APEC trade ministers meet next month in Kuala Lumpur, Malaysia.
Fast Track
To complete any new trade accords, President Bill Clinton will need special "fast track" trade negotiating authority that Congress has twice refused to give him. Fast track, rejected last month in the House, gives the president the power to negotiate trade accords that can be rejected, but not amended, by Congress.
Fast track opponents, including big labor groups and many environmental organizations, want any such legislation to mandate that U.S. trading partners adhere to high labor and environmental standards. Without those protections, U.S. businesses operate at a competitive disadvantage, they argue.
The Clinton administration chose not to lobby for fast track this fall because it saw the push for passage as a political show designed to divide and embarrass Democrats before November elections. Democrats count labor and environmental groups as major allies.
The administration has vowed to push for passage early next year, and Barshefsky said she hopes the debate can resume in January.
Other challenges facing the U.S. include extending intellectual property protections to new technology, insuring that Internet commerce remains "duty-free and fighting off attempts to block free trade in bio-engineered products, she said. That effort means ensuring that "sound science is always the test, not political expedience."