Nov. 13, 2009 -- When President Obama and Treasury Secretary Tim Geithner go to Asia this week, they will set foot on a continent that is crucial to both the United States' – and the world's – economic recovery.
Economic issues will be front-and-center on the president's first trip to Asia. In Singapore, Obama will attend a key financial summit, while in China and Japan he will meet with the two largest foreign holders of U.S. government debt. In South Korea he will encounter a country that has been the subject of a stalled free trade agreement with the U.S.
Asia, as the fastest-growing economic region in the world, is the continent that could lead the global comeback from the current crisis since the region is recovering faster than the United States and Europe.
In the past, for example, U.S. consumers have traditionally spent heavily on Asian exports, but now the tables are turning. Over the course of the current downturn, more than $15 trillion in U.S. household wealth has evaporated, so battered consumers are now spending far less money – and saving far more. The world, U.S. officials have warned, can no longer count on the American consumer to drive the global economic recovery with their loose purse-strings.
Noting that G-20 nations agreed at September's summit in Pittsburgh to work towards strong balance and sustainable growth as the world rebounds from the crisis, a White House official this week explained what that agreement means for the U.S. and Asia.
"That means for the U.S. that savings will increase and exports will increase. And very importantly, for a number of countries in Asia, it means that domestic consumer demand and imports will increase," said Michael Froman, deputy national security advisor for international economic affairs, at a briefing with reporters on Monday. "So our engagement there, the president's engagement in the region, is focused on making sure that countries are pursuing balanced growth going forward, opening their economies, allowing us to expand our exports to the region and create more export-related jobs here at home."
Riding the Wave of Asia's Recovery
If Asia grows at a rapid rate – and the forecast is for a 7 percent growth rate next year – then the U.S. might be able to ride the wave of the Asian recovery to a faster recovery of its own.
Asia currently receives about 25 percent of U.S. exports, so as Asia grows, the number of those exports should also increase. As those exports rise, so too would U.S. jobs connected to Asian exports, which now stand at 1.6 million.
While it would be a departure from the past for the U.S. to ride Asian spending to economic growth, such a scenario would still be a welcome development for the ailing US labor market, with unemployment currently at a 26-year high of 10.2 percent.
Before departing for Japan on Thursday, President Obama spoke at the White House about the discussions he planned to have with foreign leaders on a strategy for future growth.
"It's a strategy in which Asian and Pacific markets are open to our exports – and one in which prosperity around the world is no longer as dependent on American consumption and borrowing, but rather more on American innovation and products," the president said. "It's through these steps with our partners, in addition to the work we're doing here at home, that we will not only revive our economy in the short term, but rebuild it stronger in the long term."
During the third quarter of this year, the U.S. economy unexpectedly boasted a 3.5 percent growth rate, but the Chinese economy, for one, is faring even better, with their $4 trillion stimulus helping set the country on a path to a possible 10 percent growth rate next year.
But as the world's third-largest economy grows, Chinese consumers need to spend, Geithner noted this past summer.
Speaking at a U.S.-China summit in Washington in late July, Geithner stated, "China's success in shifting the structure of the economy towards domestic-led growth, including a greater role for spending by consumers, will be a huge contribution to our global challenge of bringing about a more rapid, more balanced, and more sustainable global recovery."
Geithner, who arrived in Asia on Tuesday, will only visit Japan and Singapore on this trip, not stopping in China, where he has already visited as Treasury chief.
At the Washington meetings, Geithner also said that the U.S. would try to sustain rising savings rates and try to slash its soaring deficit, another issue sure to arise during the current Pacific Rim trip.
The U.S. wrapped up the 2009 fiscal year that ended Sept. 30 with a record-high $1.4 trillion budget deficit due to increased government spending to stop the recession and the financial crisis.
On Thursday the Treasury Department announced that the budget deficit in October was $176 billion, a record for the month. The October numbers mark the first month for the new fiscal year after the US wrapped up the 2009 fiscal year that ended on September 30 with a record-high $1.4 trillion budget deficit due to increased government spending to stop the recession and the financial crisis. The final deficit for the 2009 fiscal year was equal to 10 percent of the nation's GDP, the highest shortfall relative to GDP since 1945.
The rising deficit has caused some concerns in Asia, where China and Japan, respectively, are the largest foreign holders of U.S. government debt. Still, neither country has shown signs recently of reducing their holdings. The most recent numbers for August showed that over the course of the month China decreased its holdings by $3 billion down to $797 billion, while Japan raised its holdings by $6.5 billion to $731 billion.
The deficit has also driven an increase in talk in recent months about the possible demise of the dollar. The value of the Chinese yuan, meanwhile, has been a contentious issue for years, with China accused of devaluing their currency to make its exports cheaper.
All these developments have some analysts forecasting doom and gloom for the U.S. economy, despite the stock market's surge since its lows last March.
"U.S. stocks may ride the Chinese miracle," wrote Peter Morici, professor at the University of Maryland, in a recent article on TheStreet.com, "but American workers will suffer lost hope, and the dollar may become cheaper than wallpaper before the follies end."