AUS
NZ
UK
CA
USA
IND
Summary
- The US reported 32.9% dip in its Gross Domestic Product in the second quarter of 2020, signalling a historic plunge in the economic activity.
- US economic worries in the face of COVID-19 crisis seem to be further accentuated by trade and political tensions with China.
- The substantial trade linkage of other countries with the US is primarily affecting their exports and GDP.
- The past episodes of financial crisis like the Great Recession of 2008 suggest that the interlinkage could quickly have a significant spillover effect on the performance of other countries.
The US economy is hit with a double whammy as the pandemic along with the existing trade conflict with China, seems to clog the wheels of its business activities. The unfathomable damage of COVID-19 pandemic exacerbated by Chinese trade retaliation to the US bans seems to put the US economy on the skids.
The world’s largest economy witnessed its worst-ever contraction with the GDP fall of 32.9% for the second quarter on an annualised basis, driven by steep falls in exports, consumption, investment and government spending. Besides, 1.434 million Americans filed for unemployment benefits last week, marking 19th consecutive week with claim numberss exceeding 1 million.
Meanwhile, the acerbity of the bilateral relationship between the US and China continue to impinge a plethora of aspects ranging from education to entertainment, with trade at the vanguard. While the relation between the two countries was already in a fragile state, coronavirus outbreak springing forth from Wuhan and choking the US economy has fed the fire.
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In the current situation, when the country’s economy lies in a troubled state, the stake for other world economies has also risen. Notably, the US is the major trading partner of many countries as the exports to the US remains broadly significant to the GDP of many economies.
The dilemma for the US economic revival seems to concern the majority of the nations, which could endure the spillover of its economic downturn. The US could heighten the trade barriers for supporting its local manufacturers, leading to substantial shrinkage in the trade volume.
Casting Eye on Possible Impact of US Economic downfall on Other Countries
Australia and New Zealand
US remained as the third-largest trading partner of Australia, accounting for AUD 76 billion, which constitutes 8.6 per cent of the Australian trade in FY 2018-2019. The Free Trade Agreement between the US and Australia has spurred the trade relationship between the two countries. Meanwhile, the US imported goods worth USD 10.1 billion, with meat, pharmaceuticals, optical and medical instruments, and machinery leading the chart.
New Zealand tradeD goods and services with the US worth around USD 13.9 Billion in 2018. Products like meat, beverages, dairy, eggs, honey, and machinery were primarily exported to the US, contributing USD 4.2 Billion in 2018.
The supply of various products to the US has been a significant driving force for the economies of both countries. The impacts of the downturn in the US economy is largely evident across the investor’s sentiments across the capital markets. Following the pessimism around the US economy and massive fall in Dow Jones by 226 points, Australian stock market reverberated similar sentiments as S&P/ASX 200 slid by 123 points on 31 July 2020.
Europe
Europe economic repercussions are widely evident across its various members, that continue to remain enveloped by the impediments to economic revival. European Union countries being one of the predominant suppliers to the United States seem to bear the repercussions of the US economic downturns. The machinery, pharmaceuticals, vehicles, optical and medical instruments exports have chiefly contributed to the trade export by the countries.
With the United Kingdom and Germany at the forefront, other European economies such as the Netherlands, France and Belgium seem to draw a significant portion of cash inflow via trade with the US.
The export from Europe to the US has significantly risen, catalysed by the international trade of manufactured goods. Thus, employment opportunities in Europe substantially depend on the economic recovery of the US. But the recent dip in the consumption pattern in the US signals troubles for the European market and its job prospects.
Echoing similar economic worries, Germany also reported a 10.1% slump in the second quarter owing to a significant plunge in the trade of goods and services along with the reduced household consumption.
Canada
Canada, which has substantial trade linkage with the US, is also witnessing an economic downturn, primarily due to the pandemic which can further be impacted owing to the US slowdown of the economy. IMF has projected Canadian GDP contraction of 8.4% in 2020. Meanwhile, the Bank of Canada expects the country’s economy to remain behind the pre-Covid-19 scenario until 2022.
Canada being one of the largest suppliers of goods to the US, especially in the categories such as mineral fuels, vehicles, machinery, plastics etc. could be severely impacted owing to the decrease in the consumer spending in the US, affecting the trade dynamics.
As per Bloomberg, US is planning for the re-imposition of the Aluminum tariffs on Canada, which can altogether impact the metals supply and its associated players.
Bottomline
While decoupling of the extent of the impacts related to the local lockdowns and the US economic downturn is not exactly evident, yet the historical data indicate the scars borne by different countries in the past US financial crisis. The subprime mortgage crisis in the US largely impacted its several trade allies, as their financial scenario followed the same suit of economic downturns.
The current infection situation in the US seems to touch new highs, affecting the businesses to resume their operations. Meanwhile, the ongoing spat between the US and China, creating a severe scenario for the countries could be further complicated if they are forced to take sides by the world top two economies.
The economic revival of many countries that have seen gradual growth recovery with business reopening may now need globalised spurred activities. While the trade is slowly picking up in other countries, the additional recovery would further depend on how quickly they can resume the pre-Covid-19 trade with the US.
