Monday, March 2, 2009

From Decoupling, to a Vortex

Japan is a good country to look at for trade numbers, because of its position as an economic nexus between regions, and the reliability of its public information.

Japan: Percent Change in Exports to Selected Regions (Table I)
DateU.S.ChinaW. EuropeAsia(-China)

From 1988 to 2008, there was a rapid increase in Japanese exports to the rest of Asia. The numbers indicate a shift away from the West as the main driver of the international economy. Based on this, it's easy to see why the theory of decoupling began to gain traction.


Japan: Percent Change in Exports to Selected Regions (Table II)
DateU.S.ChinaW. EuropeAsia(-China)

Since 2008, Japanese exports to all regions have declined by roughly the same amount. This suggests that decoupling was largely a statistical measurement of something else. Namely, manufacturing, and other sectors, were being outsourced from the 'developed' world (the West + Japan), to 'emerging' economies. Much of the increased trade within Asia represented different stages of outsourcing, on the way to a finished product. Jong Wha-Lee, of the Asian Development Bank, has stated that around 60 % of the final demand for Asian products comes from the West + Japan.

The productivity gains from this type of outsourcing seem to have broken down. Or, the gains can no longer match the long-term income stagnation of the developed world, a stagnation exacerbated by outsourcing. The result is imbalances in trade, increased private and public debt, and finally - a collapse in consumer demand.

Decoupling theory is over, and what we have now is more akin to a vortex.


Stats and Source

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