By Mackenzie Hurlbert
Many economists, wholesalers, and business owners are wondering if the recent financial instability in Asia has affected the import and export of goods in and out of the US. Will the instability in this giant global producer of historically inexpensive wholesale goods have an impact on the US import market?
Determining what is next for these Asian countries and their trade partners, like the US, is a murky topic to discuss, but many have made predictions on potential effects.
The cause for the economic slump in Asia is a combination of many different factors. In 2001, China was finally approved to join the World Trade Organization after many years of conflict with the other nations in the organization. Joining the WTO created incredible opportunity for China and its exports. Between 2001 and 2011, China’s manufacturing value grew over 300 percent and its merchandise trade more than quadrupled. Eventually this huge expansion in the economy began to slow between 2010 and 2014, and the growth rate of China’s exports also began to fall. China’s government attempted to counteract this slump by cutting interest rates in mid-2014, which caused many businesses to borrow money and expand. Excited by the growth, many personal investors put their life savings into the stock market or took out loans to invest in the growing economy. While many people made money, the investing increased the amount of money into Chinese stocks despite weak economic growth and company profits.
With the quick increase in funds, the stock market bubbled and then began its collapse in June 2015. While the Chinese government has worked quickly to try and control the crisis, the stock market continues to fall and economists are already seeing a ripple effect, especially concerning the prices of gold and copper. In an attempt to control the collapse, the Chinese government has frozen hundreds of individual company stocks and suspended all new initial public offerings on their stock exchange.
Many economists now expect severe ripple effects to this huge stock devaluation, especially considering China’s economy is the world’s second largest, and it is the second biggest trading partner to the US and Europe, according to CNN Money. With the US alone, China’s exports and imports value to a little under 600 billion US dollars. As the value of Chinese companies fall and they are unable to raise capital for purchasing new raw materials, the likely impact to future production is a grim picture.
While exporting goods and collecting growth rates has worked for many countries in the past, buying patterns have changed and the recent economic collapse will be harder to surmount. This is partially due to the US consumer’s newfound frugality, but a large cause is the decrease in material goods imported into the US. Yes, imports from Asian countries did increase in 2015, but the growth is credited to software development and shale oil drilling, not manufactured goods, according to Reuters.
Many economists hoped this recent decline was due to the severe winter weather the US experienced this past year and during the Lunar New Year, a month-long period where production in Asia shuts down for festivities. The New Year celebrations often cause shipping and production delays, and some thought the decline in exports was simply a result of the poor circumstances. Unfortunately, it looks like the Asian economy is suffering more than a mild slump. In Thailand, 2015 will be the third year in a row where exports have continued to fall and the deputy governor has raised concerns about relying so much on external demands.
According to CNN, the long-term effects of the Asian market collapse are still up in the air. If China is able to get its financial decline under control or at least limit the crash to just the financial sector, it has a chance at recovering and preventing larger, global effects. CNN’s Paul La Monica compared that possibility to the US’s minor recession in 2000. If the crash does continue and leak into the manufacturing sector, then China’s economy will face more severe damage and the US retail sector will definitely feel the effects. “If China’s economy is really slowing and that’s causing this market crash, that could be more like 2008’s recession, and that could be awful,” says La Monica.
What will be the effects for US retailers buying from China- sourced wholesalers? Right now, there does not seem to be any immediate impacts for 2015, but 2016 may tell a different story. If companies do not have funds on hand to purchase new raw materials for new production, this could lead to a shortage in manufactured exports within the next 6 to 12 months. In 2014, China’s global exports valued over 2.3 trillion US dollars—the effects of the current economic downfall might cut this value drastically in 2016.
A recent article from Bloomberg Business states the US has grown more reliant on buying manufactured goods from Mexico instead of Asian countries. Those who do buy from China should find the depreciation of the Yuan value helpful. Imports will be cheaper, but exporting to China will cost more than it did pre-collapse.
For wholesalers, this may mean they need to find new sources for products that have been tried and true valued products. As for flea market and swap meet vendors purchasing their goods from wholesalers, there shouldn’t be much of an impact in the immediate future, but for the long term, merchants should look to purchase from additional wholesalers who source their products from different areas of the world. This will help merchants ride out the fluctuations in market competition and ensure they don’t have all of their eggs in one basket.
Concern for future delays in imported goods from Asian countries is apparent among many business owners, but the shifts in trade patterns will continue to spur change. Economists are unsure about what long term effects may be, but they could include delays for Asian imports into the US.