Bill Emmott at PostGlobal

Bill Emmott

Great Britain

Bill Emmott is the former editor of The Economist magazine, a leading international current affairs publication from England. He is now an independent writer, speaker, and consultant on international affairs. Close.

Bill Emmott

Great Britain

Bill Emmott is the former editor of The Economist magazine, a leading international current affairs publication from England. more »

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Stock Market Swings: So What?

The Current Discussion: If countries around the world are doing so well economically, why are they still catching a cold when the United States sneezes?

They aren't: this metaphor is now entirely wrong. It is America that has a cold, though the Federal Reserve's dramatic interest-rate cut this week suggests that Ben Bernanke thinks it is getting pneumonia rather than just a cold. Since America accounts for 30% of the world economy and is most countries' single biggest trading partner, a slowdown or even recession in America is bound to affect everyone else as well. So while America has a cold, or perhaps pneumonia, everyone else is getting a slight sore throat and a few irritating sniffles. Those symptoms are worse in Europe than in Asia, but they aren't severe yet anywhere outside the United States.

Those symptoms aren't yet actually severe in the U.S. either, by the way. There has been just one month of rising unemployment. There's gloomy talk in Britain, too, yet here unemployment has actually been falling recently. Still, presumably the Fed can see something rather worse ahead for America than has yet been revealed in the economic data.

We media folk pay far too much attention to the wild gyrations of stock market prices. Yes, this week there were big falls (and then rises) in Asian and European markets following falls on Wall Street. But so what? Whether these matter depends on whether the falls were just slides down a mountain from a very great height, as they were in India and China, or whether they are symptomatic of deeper problems. There's no sign that they are: China has just announced that its economy grew by 11.4% last year, its fastest rate in 13 years.

Now, let's be realistic. These booming emerging markets do export to America, so if those exports drop then their economies will be affected, too. But let's not exaggerate, either: exports to America account for 8% of China's GDP and 2% of India's. So even if they were to drop by a quarter, which would be a huge change, it wouldn't be a catastrophe.

If trouble were to arrive in China, say, it would be for China's own domestic reasons, not because of infection from the U.S. China does have an inflation problem, which is why its government is now allowing the currency to appreciate more rapidly against the dollar and is why its central bank is doing the opposite to the Fed: it is raising interest rates, not cutting them. That clampdown carries risks of causing a collapse in investment in China, if it is taken too far. But if that happens, it would be a case of China catching its own cold. Not everything originates in America.

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