• 25 mins Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 1 hour VW Fails To Secure Critical Commodity For EVs
  • 2 hours Enbridge Pipeline Expansion Finally Approved
  • 3 hours Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 4 hours OPEC Oil Deal Compliance Falls To 86%
  • 20 hours U.S. Oil Production To Increase in November As Rig Count Falls
  • 22 hours Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 24 hours Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 1 day EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 1 day Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 1 day Aramco Says No Plans To Shelve IPO
  • 4 days Trump Passes Iran Nuclear Deal Back to Congress
  • 4 days Texas Shutters More Coal-Fired Plants
  • 4 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 4 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 4 days Chevron Quits Australian Deepwater Oil Exploration
  • 4 days Europe Braces For End Of Iran Nuclear Deal
  • 5 days Renewable Energy Startup Powering Native American Protest Camp
  • 5 days Husky Energy Set To Restart Pipeline
  • 5 days Russia, Morocco Sign String Of Energy And Military Deals
  • 5 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 5 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 5 days India Needs Help To Boost Oil Production
  • 5 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 5 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 5 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 5 days District Judge Rules Dakota Access Can Continue Operating
  • 6 days Surprise Oil Inventory Build Shocks Markets
  • 6 days France’s Biggest Listed Bank To Stop Funding Shale, Oil Sands Projects
  • 6 days Syria’s Kurds Aim To Control Oil-Rich Areas
  • 6 days Chinese Teapots Create $5B JV To Compete With State Firms
  • 6 days Oil M&A Deals Set To Rise
  • 6 days South Sudan Tightens Oil Industry Security
  • 7 days Over 1 Million Bpd Remain Offline In Gulf Of Mexico
  • 7 days Turkmenistan To Spend $93-Billion On Oil And Gas Sector
  • 7 days Indian Hydrocarbon Projects Get $300 Billion Boost Over 10 Years
  • 7 days Record U.S. Crude Exports Squeeze North Sea Oil
  • 7 days Iraq Aims To Reopen Kirkuk-Turkey Oil Pipeline Bypassing Kurdistan
  • 7 days Supply Crunch To Lead To Oil Price Spike By 2020s, Expert Says
  • 7 days Saudi Arabia Ups November Oil Exports To 7-Million Bpd
Trump Just Made Iran A Wildcard

Trump Just Made Iran A Wildcard

The impact of Trump’s decision…

Just How Important Is China To The Global Economy?

How important would an economic downturn in China be for the United States?

Paul Krugman reviews some of the reasons why the United States perhaps shouldn’t worry too much:

China’s economy, while big, is still a small fraction of the global economy– about 15 percent at market exchange rates…. Chinese imports from the rest of the world are less than 3 percent of the ROW’s GDP. Suppose China experiences a 5 percent slump in its own GDP; given an income elasticity of 2, which is reasonable, this would mean a 10 percent fall in imports– but that’s a shock to the rest of the world of just 0.3 percent of GDP. Not nothing, but not that big a deal.

Related: With Shell’s Failure, U.S. Arctic Drilling Is Dead

I’ve long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies. A downturn in China will affect some businesses much more than others. If specialized labor and capital do not easily move to other sectors, that can end up having significant multiplier effects.

For example, while China may only account for 15 percent of world GDP, it has been a huge factor in commodity markets over the last decade. According to EIA data China accounted for 55 percent of the increase in global petroleum consumption between 2005 and 2013. IMF economists Arezki and Matsumoto note that China now accounts for about half of global consumption of iron ore, aluminum, copper, and nickel.

AvgConsumptionGrowth

Source: IMF Direct.

Related: How Much Longer Can Venezuela Keep The Wolves At Bay?

U.S. exports of goods and services to China in 2014 were $167 billion, only about 1 percent of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere, this development alone has already subtracted about 0.3 percent from U.S. GDP.

Of course, lower commodity prices will force layoffs for oil companies and miners but leave more money in the hands of consumers. However, additional spending from that channel has been more modest than many of us were anticipating.

Related: EV Market Has An Unlikely Backer

Another concern comes from financial linkages. A Chinese downturn will unquestionably be a big hit for certain financial institutions. Exactly who those will be and what it means for the rest of us, I don’t know. As Warren Buffett observed, “you only find out who is swimming naked when the tide goes out.”

The bottom line is that an economic slowdown in China already is a very big deal for some U.S. workers and businesses. I don’t know what the ultimate implications for the U.S. of a significant recession in China would be.

But things I don’t know cause me to worry.

By James Hamilton

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News