U.S. Economic Slowdown Is Easing Its Way Around Globe

Auto layoffs in Mexico, shuttered semiconductor plants in Taiwan, slumping air and ship cargo demand across Asia: All are early signs of a wave of financial dislocation that has begun to work its way around the globe as the powerful U.S. economy slows down.

Whether these overseas retrenchments prove to be a temporary setback for the world’s most vulnerable countries or a spiral into a worldwide recession depends to a large degree on whether the United States can avoid a serious contraction.

Yet given the huge stake the world has in a positive outcome, overseas experts appear almost sanguine about the threat, a far cry from the feverish climate that engulfed the world’s economies in the wake of the 1997 Asian financial crisis.

One reason is that the U.S. downturn so far appears cyclical and normal, not triggered by some crisis. Another, analysts say, is that the technology-driven expansion of recent years has left the global economy in better shape to weather a U.S. downturn.

Even the economically and politically fragile new governments in Thailand, South Korea and Taiwan have rebuilt their foreign reserves and begun the painful overhaul of their debt-ridden conglomerates and banking systems. East Asia is no longer the economic house of cards it was in the mid-1990s.

“I don’t think [the U.S. slowdown] leads to a world recession, but it sure does make a much more stagnant situation,” said Barry Bosworth, an economist at the Brookings Institution. “It’s a good thing it is occurring today and not two years ago. The world economy is in a much better situation today.”

Still, even a brief contraction in the U.S. economy--which consumes 30% of the world’s total output--will have worrisome repercussions thousands of miles away, thanks to the increasing interdependence linking Mexican assembly-line workers to Detroit auto makers and Taiwanese chip makers to Silicon Valley computer firms.

Particularly vulnerable are Canada, Mexico, Japan and those countries around the world, from Ireland to Singapore, that have tied their fortunes to the technology bandwagon. Also at risk is the global network of suppliers that depends on American manufacturers of automobiles, airplanes and other capital-intensive products most likely to be deferred in tight times.

The least vulnerable region is Western Europe, where most trade is conducted within its borders. The 11-nation euro zone, experts say, is probably strong enough economically to shrug off trouble elsewhere.

The good news is that a global, wired economy transmits information so rapidly that modern corporations can catch early signs of retrenchment and adjust their production and inventory levels more quickly. Likewise, central bankers can theoretically adjust interest rates earlier in a slowdown cycle.

But that doesn’t prevent the sudden shifts in attitude and confidence among consumers and business owners that can throw an economy into reverse.

Trade Partners Suffer Whiplash

Official trade figures lag by a few months, but Robert Kleist, a 40-year veteran of the shipping industry who advises Evergreen America, the U.S. arm of the Taiwan shipping giant, said he has seen a troubling weakness in inbound shipments from Asia in recent weeks.

“My own feeling is there is enough lack of confidence at the present time that people [in the U.S.] are really watching what it is they’re stocking up on,” he said. “Unhappily, that leads to declines along the line.”

Canada and Mexico, as the biggest U.S. trade partners, can quickly suffer whiplash from a U.S. slowdown. Among the industries hit fastest is autos, and about 5,000 Mexican jobs that depend on American car sales have already been eliminated by Delphi, the big U.S. auto parts firm with dozens of plants and 80,000 workers in Mexico.

Canada’s auto industry is even more tightly integrated with the U.S. Jeffrey Rubin, chief economist for CIBC World Markets in Toronto, on Wednesday sharply lowered his growth estimates for the Canadian economy, declaring it will actually shrink by 1.4% in the second quarter. As recently as a month ago, he had been predicting second-quarter growth of 2.3%.

Asia is also feeling Detroit’s pullback.

Timothy Dunne, an automotive consultant in Bangkok, said U.S. auto makers in Thailand are under orders to slash costs. That puts greater pressure on Asia’s parts suppliers, which are still recovering from the region’s crisis. He predicts sales and production of autos in Thailand, Southeast Asia’s biggest car maker, will be flat or even contract slightly this year because of the U.S. slowdown.

Asia hardly needs more bad news. The technology boom that had helped fuel its recovery collapsed last year, sending stock markets plunging and slowing U.S.-bound shipments of semiconductor chips, disk drives and electronics components.

Some fear Japan could slide back into negative growth if the global technology retreat continues, because 40% of its exports are to the U.S. and an additional 40%--much of which is high-tech related--go to other Asian countries.

“If there’s a downturn, naturally the impact is going to be on people like the Japanese--it impacts them on both sides,” said Commerce Secretary Norman Mineta in an interview this week in Tokyo. “They’re not able to sell what they produce overseas and their own domestic industry can’t absorb it.”

The beleaguered government of Taiwan, among Asia’s most tech-dependent economies, recently refused to release a quarterly consumer confidence survey on the grounds it was “too bearish” and would have a “bad influence” on the markets.

Taiwan’s blue-chip companies, which operate the largest semiconductor factories in the world, have suffered the brunt of slowing PC demand. Prices of dynamic random access memory chips have fallen from nearly $9 last summer to about $3. Taiwan Semiconductor Manufacturing Co., the world’s largest chip producer, has seen its share prices plunge by 66% since April and has announced a first-quarter production cutback.

Technology firms aren’t alone. Shipping companies, travel agencies and luxury good retailers are bracing for a slowdown. Share prices of Singapore Airlines Ltd., Japan Airlines Co. and other Asian airlines fell this week after the carriers announced a 2% drop in November’s cargo usage over the previous year. The culprit, according to carriers, was a decline in semiconductor and electronics exports from Asia.

The least vulnerable to America’s malaise is an economically united Western Europe, which conducts about three-quarters of its trade within its own borders and has its own currency, the euro.

The European Central Bank--which had raised interest rates by 2.25 percentage points since October 1999--decided last week not to lower rates, arguing that the 11-nation euro zone is strong enough economically to shrug off trouble elsewhere. Even Russia’s threat to default on a large loan was buried in the financial pages, a testament to that country’s improved economic performance.

If oil prices decline, the euro continues a recent rebound and the European Central Bank stops raising rates, the region should grow by about 2.5% this year, estimated money manager Felix Rovelli, a Europe specialist with Riverside International Research in New York.

“They never had the boom, so probably they won’t get the bust,” he said.

Which is not to say that Europe won’t feel any of our pain. Auto makers Volkswagen, Daimler Chrysler, Volvo and BMW are bracing for lower U.S. sales, as are such fast-growing technology firms as Finnish cell-phone maker Nokia.

U.S Operations Spread Slowdown

Many of Europe and Japan’s leading firms are also exposed to America’s slowdown through their U.S. subsidiaries. Income from Europe’s U.S. operations fell by 20.3% in the third quarter, according to a report by Morgan Stanley Dean Witter.

“The effects of a weak U.S. economy have already spread to Europe and Japan via their U.S.-based operations, a fact largely overlooked by investors,” the report stated.

At least one European executive is confident he will survive, and perhaps even prosper, if the U.S. economy goes south.

“If the economy slows down and unemployment starts to rise, then people will have more idle time to play our games,” said Hubert Joly, chief executive of Vivendi-owned Havas Interactive Inc., one of the world’s largest interactive game companies and producer of the popular “StarCraft,” “Diablo” and “Warcraft” titles.

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Mark Magnier of The Times Tokyo bureau contributed to this report.

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Shrinking Overtime Hours

The recent cooling of the national economy appears to have begun cutting sharply into the overtime hours of manufacturing workers. As recently as April, the average weekly overtime for production workers was 4.9 hours, the highest level in more than two years. But the figure for December, 4.0 hours, is the lowest in nearly eight years.

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Averagely Week Overtime Hours for Production Workers

December*: 4.0

*Preliminary figures subject to revision

Source: U.S. Bureau of Labor Statistics