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Bill Owens: 2016 - The Year Of Oil And China...Or Presidential Politics

It seems most of the media coverage and much of the country is focused on the presidential election of 2016. What will impact your life more: oil and China, or presidential politics?

China is clearly experiencing a slow-down, and possibly a recession. Could it deepen to depression? What impact will that have on the US economy—or maybe we should ask, what impact should we let it have?

A few facts may be helpful to set the background for this discussion. US GDP in 2014 was $17.4 trillion dollars, and in 2015, $17.9 trillion dollars. China’s GDP in in 2014 was $10.3 trillion, and in 2015, it was $11.3 billion. Our total exports represent 7.7 percent of GDP, with China representing $123 billion of exports in 2014, and $106 billion in 2015, which is slightly less than 8 percent of our total exports and about one-half of 1 percent of GDP. Imports from China are substantially higher, accounting for $465 billion in 2014, and $443 billion in 2015, representing approximately 2.5 percent of GDP. Contrast that with our exports to Canada of $312 billion, and imports of $347 billion in 2014, and $259 billion and $271 billion respectively in 2015. Our trade with Mexico in 2014 was $240 billion in exports, and $294 billion in imports, while in 2015 those numbers respectively were $217 billion and $271 billion. The combined impact of our exports to Canada and Mexico in 2015 represented in excess of 36 percent of our total exports and almost 3 percent of our GDP. China’s recently announced anticipated GDP growth in 2016 will be 6.9 percent, while in the US it is predicted to be somewhere between 2 to 3 percent.

The causes of the decline in the Chinese economy are somewhat difficult to decipher because of the Chinese government’s control over the business climate and the media. It is beginning to look, however, like any other capitalistic system that has a cyclic pattern to it: a period of excess borrowing, construction beyond reasonable demands, followed by years of explosive GDP growth, as well as financial and currency manipulation. China is also dealing with the impact of a growing middle class with its concurrent demand for consumer products. There has also been a massive relocation of the Chinese population from the countryside to the cities, which in part has fueled the enormous construction activity.

In the United States, we are watching the impact of declining oil prices; most of us are enjoying the benefits of lower prices for gasoline and heating fuel. We have not, as yet, seen any impact on the airline industry (that translates to “Where are reduced prices?”) nor on industries such as electricity generation, or manufacturing, as one would anticipate that the cost of power would be declining and thus reducing production costs.

The growth of free trade agreements must also be factored into any analysis of how a country responds to the weakening of another’s economy. The US dollar is strengthening, which effectively weakens our ability to export, particularly as the Chinese continue the manipulation of their currency. This is one of the reasons we have not seen a dramatic decline in Chinese exports to the United States. It was $465 billion in 2014, and in 2015, $443 billion, which, in macro-economic terms, is truly just a blip.

As the Chinese economy continues to weaken, the dramatic losses on their stock exchange and declining commodity prices (due to the tremendous increase in capacity that was created in the belief that the Chinese would continue to fuel demand for commodities) have left us with the need to determine our economic response.  The simple answer is decrease Chinese imports; the question is, can it be done.

We all are aware that 70 percent of the US economy is driven by consumer spending. With the unemployment rate hovering around 5 percent and continued job growth (over 290,000 jobs created last December), we are in contrast to the global economy in a strengthened position.  To sustain that position, we should be focusing on the NAFTA marketplace based upon the sheer value of our NAFTA trade and its impact on US GDP.  Go with your strengths, a simple idea with great potential value.

Mr. Owens is a former member of Congress representing the New York 21st and a partner in the firm of Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC, in Plattsburgh, New York.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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