News from Notch Consulting, Inc.

January 14, 2009

American Recession, Chinese Depression?

Filed under: General — Notch @ 10:43 pm

Over at Business Week, Michael Mandel is arguing that, if we use the Great Depression as a model, the current downturn may be worse for China than for the United States.

The plunge in U.S. real GDP from 1929 to 1933 was far bigger than comparable countries, at least according to data from Angus Maddison.

Why the disparity? There’s all sorts of reasons, relating to monetary policy and other factors. But in part, the U.S. was hit harder because it was a ‘trade surplus’ country—that is, a net exporter of goods. By contrast, Great Britain (for example) was running a sizable merchandise trade deficit in 1929, so cutbacks in spending would be felt more outside of Britain.

The question now is whether China, and more generally the trade surplus countries of East Asia, are going to play the role of the U.S., as acted out in 1929 and the years that followed.

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