The complex issue of trade

Japan has seen a fall of over 10% in exports in September compared to a year ago. This is pretty exceptional under any circumstances and threatens the Japanese economy.

The causes are varied and add up to an overall drop. They are:
A boycott of Japanese goods in China
The weakening of European markets
The strong Yen

The unfortunate combination of factors means that japan will see Aggregate Demand falling as net exports (X - M) is a significant influence on the Japanese economy. Japan has run a trade surplus for many years and this has helped raise the rate of growth in Japan. Now a return to recession is a real possibility.

Interdependence of modern economies is a fact of life.

The BBC report the story here

US economy will affect UK recovery

It was once said that if America sneezed then Europe caught a cold. The phrase was based on the power of the US economy as a buyer of European goods.

If America goes into recession their demand for imports falls. That means European exports fall and so demand falls and jobs are lost here. The UK's biggest trading partner is the USA and so the fact that the US created no jobs last month is worrying. It suggests the US economy is very much weaker than thought and could return to recession.

This is more of a cause for concern for the UK than for other EU countries as the business cycle of the UK is much more closely aligned to the US than it is to the EU. While that is changing (60% of the balance of trade is accounted for by EU trade) America remains a key power in the world economy, roughly equal in size to the whole of the EU in GDP terms.

External factors are more and more important to the way economies behave. No government can fool itself that it has all the policy answers to its own economic problems.

The Guardian cover the US jobs crisis here