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Asian pain represents gain for Washington investor


Top US officials have expressed guarded confidence that the Asian flu will not harm the US economy. In fact, they have been betting that the Asian flu will present opportunities for US investment, rather than liabilities.

President Bill Clinton's State of the Union speech on Tuesday reflected this guarded confidence. ''The American economy remains sound and strong -- and I want to keep it that way. But because the turmoil in Asia will have an impact on all the world's economies, including ours, making that negative impact as small as possible is the right thing to do for a safer world -- and the right thing to do for America,'' he said.

This is the chief reason Clinton's ratings remain high, despite the sex scandal engulfing him. There are a number of reasons why the Asian contraction is not likely to harm the momentum of the US economic expansion.

First, although the turmoil in Asia will slow down US exports to the region, the impact will not be that great. Fortune quoted Salomon Smith Barney as estimating that the sluggish Asian growth, combined with the sharp rise of the US dollar against the regional currencies, will slow down US exports to Asia by 13 per cent. This is no big deal. Exports do not represent a big chunk of the US economy, which is not as globalised as most people think. Exports account for 12 per cent of the US gross domestic product, while exports to Asia are only about 33 per cent of total exports. The net effect of the slowdown in exports to Asia will be around 0.5 per cent (13 per cent x 12 per cent x 33 per cent) of the gross domestic product.

Second, the US GDP will drop by between 0.50 per cent and one per cent this year due to the Asian crisis. Lawrence Summers, the deputy US treasury secretary, told Fortune he expects the Asian crisis will reduce by only 0.50 per cent US economic growth. ''If the Asian situation stays contained,'' he says, ''which is what the countries involved, we, and the IMF are all trying to do, there will be a noticeable impact on trade. But there will not be any interference with the basic momentum of the current economic expansion.''

Third, fears of Asia exporting deflation to the US economy are overblown. There have been arguments that the Asian countries, suffering from competitive devaluations, will be exporting cheap products to the US and hurt the US industries or their price levels. The reality is that the US economy is more service-oriented than merchandise-driven. About $3.3 trillion of the US GDP is derived from services, compared with $2.3 trillion for merchandise. Even more so, only about 10 per cent of the merchandise sold in the US markets is imported from Asia.

If the US economy is relatively insulated from the Asian crisis, then it should benefit from this crisis by buying the region cheaply and tearing down regulatory barriers. Nicholas Sargen, global market strategist of JP Morgan and Co, was quoted by Reuters as saying the US economy remains in excellent health although the Asian turmoils will reduce the S&P 500 earnings growth to 6 per cent from last year's 11 per cent.

He advises his clients who ask about whether or not to get into the Asia markets that, ''it's so cheap, anybody who takes a long-term perspective is bound to come out ahead.''

He sees the Asian flu as an opportunity for investment houses and says ''governments, like the one in Japan, must open up [their] financial systems to restore confidence. After seven years of stumbling, Japan will need a dose of supply-side economics ... including major tax cuts,'' to encourage private and corporate investment in its stagnant economy.

Richard Fisher, the nominee for deputy US trade representative, also placed the burden of reviving the sluggish Asia on Japan, saying the US won't be in a position to absorb a large influx of imports from the region. According to Agence France-Presse, he told a congressional panel that Japan is more vulnerable to the Asian crisis than the US since about 40 per cent of its exports are to Asia.

This implies that Asia should look for more leadership from Japan if it wants to stage an early recovery. Fisher said Washington will push Japan to not only boost its domestic demand but to take additional steps to deregulate its economy. ''Deregulating that economy is everybody's business,'' he said, adding that Japanese Prime Minister Hashimoto ''needs to act on [his] promises of deregulation.''

''We are not satisfied, more deregulation needs to take place,'' he said.




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