Workers in South Korean sneaker factories, Chinese toy factories, and Taiwanese electronics companies may be among the unintended victims of the terrorist attacks in New York and Washington two months ago. Americans are buying less, and if their holiday spending in the next month declines dramatically, that could affect Asian countries that depend on exports to the United States.
The end of the year Christmas holiday season is usually the best time of the year for American stores, with sales in December often accounting for more than a quarter of their annual sales. President Bush has urged Americans to continue to go about their business as usual, but consumption has declined since the terrorist attacks.
In October, the U.S. consumer confidence index dropped to its lowest level in seven years, and the unemployment rate rose to a record high. Analysts say a dangerous cycle now looms of layoffs, rising unemployment, and reduced consumption. And Americans are not the only ones spending less, household spending has also fallen in Japan and Western Europe.
Yale University Professor David DeRosa says because Asia supplies much of the world's consumer products, the region's economic future is captive to demand conditions outside of Asia. "Non-Japan Asia is being hit in a lot of different ways right now, but it's basically a collapse in demand for their products from the United States, from Europe, and especially from Japan," he said. "It's very difficult to conceive a set of macroeconomic policies that can revitalize an export-driven economy when the people who buy the exports aren't buying."
Mr. DeRosa, a professor of finance at the Yale school of management, says the United States, Europe, and Japan used Asia in the 1990s as a place to produce high-technology components, and Asia profited from that. But now, he says Asian countries have been hit hard - first by the slump in the technology sector and then by the planes flying into the World Trade Center. "It was literally and figuratively a bolt out of the blue," said Professor DeRosa. "It may do some horrible things to the Christmas sales season this year. But going forward, I think, the economy will recover nicely, unless something else happens. We now know, if we didn't before, there's no way of predicting that."
Professor DeRosa expects the U.S. economy will likely recover from the downturn caused by terrorism sometime late next year, and he says that should help companies in Asia.
Asia watcher Alan Tonelson is not so optimistic. Mr. Tonelson, a researcher with the U.S. Business and Industry Council, says Asia will suffer a severe economic downturn because of its dependence on exports to the United States. "We're talking about everything from sneakers and toys, to the most advanced electronics and information technology and telecommunications equipment that you can think of, because now East Asia, even leaving Japan out of it, now supplies all of these kinds of goods to this market," he said.
Taiwan's semiconductor industry, for example, is expected to suffer a 26 percent drop in production this year as a result of declining global demand.
Mr. Tonelson, the author of a recent book on economic globalization called "The Race to the Bottom," says he does not think things will start looking better next year. "Of course, U.S. demand will pick up at some point," said Alan Tonelson. "Of course, it will benefit East Asian economies. The problem is too many rely too heavily on exporting too much of the same kinds of products to the United States. Not all of them can win out. And with China coming into the World Trade Organization and gaining tremendous protection from the U.S application of various laws designed to prevent predatory trade practices like dumping and intellectual property theft, the Chinese are going to be the big winners here. And I would imagine most of the rest of East Asia will be big losers."
Mr. Tonelson says there could be pressure on Asian companies to contract their businesses and lay off workers. But he expects those companies to try to pull out of their economic troubles the same way they have in the past - by exporting unemployment to the United States. In other words, he expects Asian companies to continue producing goods and exporting them at very low prices - or dumping them - into the U.S. market, which he says could end up displacing American workers.
Other analysts say some Asian producers may not be hurt by the slowdown in U.S demand if American consumers merely substitute expensive purchases with less costly ones. For example, instead of buying sweaters from Italy or silk goods from France, they might buy Chinese sweaters or silk from Thailand.