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How America Will Be Affected By China’s Plummeting Economy – Video

China's plummeting economy

Investors and normal citizens alike are looking on in fear as China’s plummeting economy continues to sour.  China, being the second largest economy on Earth will have a ripple effect throughout the world.

According to ABC News [1]:

Stocks in the U.S. are falling dramatically today following the three-month low for China’s benchmark stock index, the Shanghai Composite Index.


ABC US News | World News

As a measure of how big the slide is compared to Greece’s financial crisis, China’s stock market is losing multiple times the value of Greece’s GDP almost daily, Bloomberg reported. But American consumers may not have to panic — just yet.

1. U.S. Stock Market and Your 401(k)

The major U.S. stock indices, the Dow Jones Industrial Average, S&P 500 and tech-heavy NASDAQ, were all down about 1 percent this morning, which may take a bite out of American retirement accounts. Investors are concerned about the major sell-off in China and that government intervention there, such as regulating who can sell their stock shares, is making things worse. Stocks of American raw materials companies such as Alcoa Inc., the world’s third-largest aluminum producer, are tumbling.

2. American Financial Companies

Americans are unlikely to be directly affected by financial events in China to any significant degree, according to Barry Bosworth with the Brookings Institution.

“American financial institutions have very small to insignificant investments in China, so it does not affect pension funds or other investment activities,” he told ABC News today. Still, shares of American financial companies like Citigroup and Bank of America have fallen nearly 2 percent this morning.

3. Trade

In terms of financial risk in trade, China is a major exporter to the U.S., but Canada and Mexico are larger export markets, which matter for American workers, Bosworth said.

“Even if it has an impact on the Chinese economy and Chinese incomes, the effect on the United States would be limited because we do not export very much to China,” Bosworth said.

But as the second-largest economy in the world, and normally an important stimulus to global growth, the ongoing concern is that China’s stock market sell-off is translating into lower stock prices for multinational corporations.

While it is a big concern for corporations and some employers with large ties to China, Bosworth said, “Such considerations are second-order small for U.S. consumers.”

Lindsey Piegza, chief economist with Stifel, told ABC News today there may be a silver lining for the U.S. consumer in China’s market problems.

“A decline in global demand, led by a slowdown in Europe and China will continue to result in declining import prices, creating an ever more benign inflationary environment at home,” Piegza said.

She notes that a decline in global demand translates into a decline in the demand for raw materials and commodities, which could offer the U.S. consumer even more price reprieve outside of energy.

“Of course this is double edged sword, as a decline in global demand particularly Chinese demand is two-sided and will further erode U.S. export demand and manufacturing, sending business and revenues overseas,” Piegza said.

Sources:

[1] http://abcnews.go.com/Business/chinas-stock-market-tumble-affecting-us/story?id=32301061

 

Royce Christyn
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