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This Is Uncomfortable

Europe v China: Whose economic woes pain America more?

Tracey Samuelson Oct 21, 2014
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China’s GDP increased by only 7.3 percent in the third quarter this year. While that’s a figure many countries would kill to have, it’s relatively slow for China – in fact, it’s the lowest quarterly figure in five years.

Of course, China’s not alone; Europe is in the midst of a slowdown, too. So which stalling economy is a greater threat to our own, here in the U.S.? On the one hand, China is the world’s second largest economy, but Europe is an important trading partner.

“If I was picking, I’d be picking Europe,” says Kent Smetters, professor of business economics and public policy at the University of Pennsylvania’s Wharton School.

Smetters says Europe tends to purchase high-margin goods from the U.S., such as machines.

“With China, not only is it a much smaller trading relationship, the margins that we get with what we’re trading is a lot different,” he says. “Our biggest export, for example, is soy beans.”

Slower economic growth in China matters to the U.S. less than a slowdown Europe, agrees Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. In addition to exports, Europe can also impact our stock markets, he says.

“Things look depressed in Europe,” he says. “So European shares are cheaper, so that’s going to ripple over U.S. shares because some investors will say, ‘Well, let’s buy those cheap European shares instead of the more expensive U.S. shares.’”

Hufbauer says Europe has been dragged down by the debt of its countries and a lack of agreement about how to combat sluggish growth. He doesn’t expect that to change any time soon.

On the other hand, China’s slowdown is at least partially by design of its leaders, says Nicholas Consonery, the Asia director at the Eurasia Group. So while many investors are fearful of the slowdown, he says, “It’s very clear that transitioning into a phase of slower, more sustainable growth is a healthy   and not just healthy, but also necessary adjustment for China.”

Consonery says a more stable China, with stronger consumer spending, could actually be good for the U.S. in the long term.

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