The changes in consumer expenditures during the great depression strongly suggest that the the world's economic pain will fall disproportionally on the US. Specifically, the Crash of 1929 caused a collapse in durable goods spending in 1930, with a 50% decline from 1929 to 1933. Unfortunately for America, our manufacturing and exports are heavily concentrated in durable goods, as evidenced on the White House's Website:
Most U.S. exports of goods are capital goods, consumer durable goods, and inputs that are used to produce them, and are therefore very sensitive to changes in foreign GDP. Capital goods and consumer durables account for 61 percent of nonenergy U.S. merchandise exports. Industrial supplies, which are often used in the production of capital goods and durable goods, account for 14 percent of nonenergy U.S. exports. For example, in 2006, the United States exported almost $85 billion worth of automobiles, auto parts, tractors, and trucks; $46 billion worth of electronic circuits; more than $43 billion worth of airplanes and aircraft; and nearly $21 billion worth of parts and components for office machinery.
As for low-quality non-durable products (heavily purchased by poorer Americans) whose consumption held up best during the great depression, America's CEOs have aggressively outsourced them around the world. China exports growth, for example, has been primarily concentrated in these low quality goods. As the dollar collapses, These cheap imports which benefited America's poor will soon become high cost imports which crush them.
To summarize, America makes and exports durable goods which are especially sensitive to economic downturns, while China makes cheap non-durable goods which are the most resistant to downturns. With the worldwide sale of SUVs and tractors likely to fall much further than the worldwide sale of diapers, the global economic slowdown will disproportionately hurt the US's economy and trade deficit.
Make sure you add CEOs who championed outsourcing to your list of "people who destroyed our country".
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Eric
I agree with all your points but I take issue with your hostility towards CEOs who offshore and out source.
The problem is actually two fold. Our borrowing and the rest of the worlds lending.
If we had a non-fiat based currency based on real things IE.gold, these distortions would never have happened.
Outsourcing to another region which has better competetive advantages than your own is the epitome of specialization of labor and makes a whole lot of sense IF there is trade in goods and NOT
debt instruments.
In such a trade relationship both parties benefit, where-as in the current system both sides suffer (I think us more than them due to the reasons you outlined in your post.)
We have rotten money and it's no surprise that our economic system shouldn't be rotten as well, however free trade should not be made the scape goat in this mess.
The "free trade" ideology as promoted by Washington and some CEOs should be held responsible for today's mess, because it is a direct cause of all our current problems. Under the "free trade" ideology, our governtment has been pursuying a flawed, irresponsible trade policy:
1) In the name "free trade", our government has unilaterally opened up US markets to countries which haven't returned the favor. One-way "free trade" agreements have decimated our manufacturing and left our country's economy weak. True "free trade" works both ways!
2) In the name "free trade", the US has struck up trade agreements disproportionally with low-income countries. These low-income countries are poor markets for US goods, but are excellent low cost areas to outsource US manufacturing. The end result is that the US focus on "free trade" with poor countries destroyed most of our manufacturing sector.
U.S. Trade Deficit Endangers the American Economy
Essentially, no one can know just when America's trade deficits and foreign debts will reach the tipping point in investors? minds. But here's what we know for sure: First, the higher these deficits and debts become, the closer we get to that point. Second, the Bush administration's trade policy is bringing this day ever closer -- by unilaterally offering to open the U.S. market to prospective allies in the Iraq/anti-terror campaign, and by pursuing a trade agenda focusing on low-income countries that can only become major suppliers to the U.S. market, not major customers of U.S. products.
Finally, Labor markets tend towards equilibrium. If Americans workers who enjoy a high standard of living are forced to directly compete against third world workers living in poverty, then equilibrium will force Americans into poverty. This is the reason US consumers are so in debt: as direct result of competition with the world's poor forcing down their income and compensation, Americans have been using debt to maintain their standard of living. Without the disastrous "free trade" policy of the last two decades, Americans would still have a strong manufacturing sector with high paying jobs and would not need to borrow money from foreigners to finance consumption.
Washington's current outsourcing-friendly "free trade" policy has deeply harmed our country, and they show that an unbalanced "free trade" policy is worse then protectionism. At the very minimum, trade agreements should be mutual and should be distributed evenly between low-income and high-income nations.
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