The world economy entered the current crisis in a badly lopsided condition, with the American consumer borrowing massively to buy products from Chinese and European manufacturers who happily socked away all their extra cash while producing more than their home markets could absorb. Now, pressed by rising unemployment and the need to rebuild shrunken household wealth, the American shopper is tapped out.
The consumer's retreat is making itself felt around the world. The first six months of this year, Americans bought $18 billion fewer German-made goods than during the same period in 2008. For German factories, that meant the loss of more than 35% of their U.S. orders. It was the same story for Japan, which saw $31 billion worth of sales vanish — 42% of its total.
Major auto-producing countries weren't the only ones to feel the chill. Chinese factories shipped almost $21 billion fewer goods to the U.S. during the first half of this year than during the same period last year. And with consumers still confronting several years of paying down debt and repairing their balance sheets, many economists say the world confronts a permanent shift in economic drivers.
"The world is going to be adjusting for years to slow growth from the U.S. consumer," says economist Kenneth Rogoff of Harvard University. "The U.S. consumer has been the engine of world growth for the last quarter century; that engine has stalled."
Not everyone agrees. Christian Broda, head of international economic research for Barclays Capital, says the world may be headed for slower growth, but that doesn't mean no growth. Substantial monetary and fiscal easing that has been put in place has yet to make itself felt. As it does, growth will improve. Stories of a complete change in Americans' behavior, he says, have been overdone.
"Savings will go up, but these processes will take years. ...You won't rebuild your wealth in a year," he says.
Rather than seeking to restart the same engine in the same way, U.S. policymakers say, they want to construct a more durable economic foundation. Lawrence Summers, head of the president's National Economic Council, said last month that the U.S. economy "must be more export-oriented and less consumption-oriented" as it emerges from the crisis.
That's a sensible goal, but unfortunately, the U.S. isn't alone in embracing it. German Chancellor Angela Merkel says there is "no alternative" to continuing her country's longstanding reliance upon exports rather than boosting demand at home. Japan, too, shows no signs of making a fundamental shift. And Chinese officials, while acknowledging a desire to promote greater domestic consumption in the long run, are wary of moving too quickly for fear of killing jobs in their export factories.
"The world can't cope with the U.S. and China both acting like China," Magnus says. "What's going to give?"
That's not clear. Chinese consumption could accelerate faster than expected, though there's no sign that is imminent. Through July, Chinese savings deposits rose at an annual rate of 29%, vs. 11.3% in the same period in 2008, according to DBS Group Research in Singapore. Alternatively, China might continue binging on investment. But that's only a short-run fix, which would ultimately swell both production capacity and inventories, depressing global prices. Or the world recovery could limp along at an especially anemic pace for years.