Page 47 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

Other countries enjoyed significant trade surpluses—most
notably the oil-exporting countries and China (9.5 percent of
GDP), Germany (7.3 percent), and Japan (4 percent).
This pattern cannot continue. The deficit countries will be
unable to maintain their consumption patterns because they
need to rebalance their finances. What is more, government
efforts to support domestic demand will become politically
unacceptable if they simply benefit workers in other countries.
Ideally, there would be a coordinated international approach to
rebalancing trade flows. Deficit countries would endeavor to
soften the impact of the downturn at home—and thereby, by
default, support the export-oriented countries for some time. And
the export-oriented countries would boost domestic demand to
compensate for the fall in the demand for their exports—and
thereby support the necessary rebalancing of trade flows. Without
this kind of cooperation, protectionism surely will result.
To accomplish a rebalancing, some fundamentals of the eco-
nomic and business models in developing economies may need
to change. In particular, developing economies will need to
focus more on serving domestic consumers—and make fewer
goods for export. For multinationals, globalization could take
on new meaning as they focus more on producing in develop-
ing countries in order to serve the local domestic markets—
countries that, for the past couple of decades, have been viewed
by some multinational companies simply as low-cost manufac-
turing locations rather than as consumer markets.
The surplus countries seem to share the same view: all have
initiated major programs to stimulate domestic demand. China
launched the biggest program with $586 billion, driven mainly
by the fear of social unrest if the growth rate were to drop much

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