Crisis in Japan - how it affects the U.S.
The earthquake that struck Japan on March 11 and the resulting tsunami devastated vast areas of northeastern Japan, left hundreds of thousands of people homeless and killed more than 10,000. On top of all the misery, an out-of-control nuclear plant threatens to contaminate the region. Even though thousands of miles away, the United States feels the impact of the quake. If we are lucky, the temporary negative impact will be moderate: we will have to deal with increased prices for oil and gas as Japan has to rely more on fossil fuels to compensate for a reduced nuclear power capacity. These cost increases will weigh on the earnings of businesses in the transportation sector, major energy consumers as well as households’ incomes. The resulting drop in purchase power and firms’ willingness to hire can slow the economic recovery. Also, the tourism industry will feel the lack of Japanese visitors. Many manufacturing companies depending on Japanese parts suppliers such as auto companies and computer manufacturers will have to halt production. Now if Japanese authorities manage to avert a nuclear crisis and focus on the reconstruction after completing the relief operations, Japan might see economic growth in the medium term far above the painfully low levels of the “lost decade(s)”. However, if a nuclear catastrophe was to happen, the outlook for both Japan and the world would be grim. Escalating costs for crisis management, relief and reconstruction efforts would soon push Japan’s already unhealthy fiscal situation to the point of defaulting on its massive debt. Lack of uncontaminated food and water supplies, catastrophic damage to the public infrastructure, lack of energy and widespread chaos would result in the bankruptcies of countless Japanese firms, a depression in Japan and most likely in another severe global recession with limited means of supporting the countries in desperate situations and stabilizing world markets. Long supply-chain interruptions and investor uncertainty would bring U.S. unemployment to new highs, jeopardize several manufacturers which would struggle to permanently substitute supplies from Japan and several providers of luxury goods and services to the Japanese would be in huge trouble too. Overall, the best case scenario for the U.S. would mean pain in the short run but a potentially strong recovery in the medium term. The worst case scenario is highly damaging and painful.
