How Does the Crisis in Japan Affect the US Economy?

The earthquake that shattered Japan’s northeastern coast in early March was a horrible natural disaster. But the devastating loss of life, widespread destruction of local infrastructure, and extensive damage to peoples’ homes created international ripples that shocked more than the earth’s crust. The effects of this crisis on the world economy were felt across the board, leaving many Americans wondering about the long-term effects on the US economy.

Japanese cars are wildly popular in the US market. Millions of Americans consider them safe, sturdy cars that last for a long time. Unfortunately, the earthquake has significantly halted production and slowed the flow of goods to US auto retailers. The decreased supply of Japanese cars to America, along with the recent progress made in US auto manufacturing, might shift demand to American-made cars.

Despite US economic gains due to decreased competition, our slowly growing economy depends largely on Japan as a close ally and major financial player. We operate in a world of global trade where our own stock market is subject to the whims of international and domestic investors. Recent worldwide disasters, both natural and economic, could give investors the feeling that world events are spiraling out of control, causing them to pull their money out of the stock market. If stockholders run scared from their investments, more countries than Japan will face rough economic outlooks. Our economy is so intertwined with the rest of the world that what happens to Japan in the coming months will shape the financial future of the United States.

Japanese citizens have made amazing efforts to handle the cleanup after the quake. Their demand for fuel during the cleanup process, compounded with unrest in the Middle East, has driven up oil prices. In addition, the aftermath of the Fukushima-Daiichi nuclear disaster has many nations moving away from nuclear power. Countries that have historically depended on nuclear power will be demanding more fossil fuels. The stress of high oil prices on an already shaky world economy has the potential to affect the momentum that’s slowly beginning to build.

But despite the peril facing the world, there is always potential to rebuild and reinvigorate the economy. The US is slowly rising to its financial feet, and perhaps with the rising powers of India and China adding to the effort, we can turn the tide of worldwide recession.

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