Will Japan's Disaster Hurt The Global Economy? Japanese officials are still assessing the damage from the earthquake, tsunami and what appear to be partial meltdowns at some nuclear plants. The cost will be in excess of $100 billion. The Japanese economy is likely to shrink temporarily. But the global implications aren't so clear yet.
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Will Japan's Disaster Hurt The Global Economy?

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Will Japan's Disaster Hurt The Global Economy?

Will Japan's Disaster Hurt The Global Economy?

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It's MORNING EDITION from NPR News. I'm Renee Montagne.


And I'm Linda Wertheimer. Steve Inskeep is on assignment in Cairo.

Japanese officials are still assessing the damage to their country from last week's earthquake and tsunami. Then there's the ongoing crisis at the crippled nuclear power plant. The overall cost could easily be in excess of $100 billion. The Japanese economy is likely to shrink, at least temporarily, as a result of the lost production. The damage to the global economy is less clear, as NPR's Tom Gjelten reports.

TOM GJELTEN: The attacks on 9/11 prompted analysts to ponder this question: How bad does a disaster have to be for it to bring down a country's whole economy? Marcus Noland of the Peterson Institute for International Economics says it all depends on whether the effects of a disaster spread beyond the local area and make their way through a country's power, transportation or communication networks.

Mr. MARCUS NOLAND (Deputy Director, Peterson Institute for International Economics): The real question with Japan is the power sector: To what extent these nuclear power plants both create local problems in terms of meltdown from an economic standpoint to what extent did they disrupt the national electrical grid and spread disruption to the rest of the country?

GJELTEN: Japan's most important economic zones were not immediately affected by this disaster, but that could still come if the power grid breaks down, for example. Obviously, the more deeply Japan's own economy is affected, the more the world's economy will suffer.

Because of global supply chains, halting the production of one little component of something in Japan may affect the production of other components in other countries. That's true for the assembly of big things like cars and little things like microprocessors used in some high end devices.

Mr. JIM HANDY (Objective Analysis): I'm talking about things like cell phones that have fancier graphics on them.

GJELTEN: Jim Handy follows the semiconductor industry for the firm Objective Analysis. He says some components come from factories in areas of Japan that were barely touched by the earthquake but which nevertheless have been closed out of a concern that the production equipment may have been slightly jarred.

Mr. HANDY: The equipment does have to be looked at again, to make sure that it's still in alignment and still can be used for production.

GJELTEN: Here's another point: The global oil market could be affected. Oil prices fell yesterday because of an expectation that Japan, a big oil importer, will need less oil in the short run if its economy is shut down. But Scott Brown, chief economist for the Raymond James investment firm, sees the earthquake in Japan soon driving oil prices back up.

Dr. SCOTT BROWN (Chief Economist, Raymond James Financial): Once repairs get under way you'll probably end up seeing even more oil imports because of the shutdowns in the nuclear facilities.

GJELTEN: On the other hand, Marcus Noland of the Peterson Institute thinks Japan's effect on the international oil market could easily be overstated.

Mr. NOLAND: From a global standpoint, the events in the Middle East and the effect on oil markets dwarf what is happening in Japan.

GJELTEN: Of course, that's looking at what's happening in Japan purely in economic terms, not considering, for the moment, the human tragedy there.

Economic activity adjusts heartlessly. Production moves from one country to another. Here's an example: Peter Morici, a University of Maryland economist, formerly with the U.S. International Trade Commission notes that even a temporary shutdown of auto production in Japan could actually boost production by automakers in other countries - South Korea or even the United States.

Dr. PETER MORICI (International Business, University of Maryland): To the extent that Camrys and Corollas don't come here because of the shutdown and Ford and General Motors and Hyundai capture customers, they're likely to keep those customers.

GJELTEN: Toyota, meanwhile, might just see its market share decline. In truth, it's probably just too soon to assess what the earthquake and tsunami are likely to mean for Japan's own economy, for the U.S. economy or for the global economy.

Byron Wien, the vice chairman of Blackstone Advisory Partners, thinks there are too many unknowns, but he is sure of one thing.

Mr. BRYAN WIEN (Vice Chairman, Blackstone Advisory Partners): This is a very major event, and it's going to have, obviously, major implications for Japan. And I think it's going to have major implications throughout the world.

GJELTEN: At this point, it is the human toll that matters most. By that standard, Japan hasn't experienced a tragedy like this in more than 60 years, and for now the humanitarian challenge of coping with the disaster takes precedence over the economic issues that will follow.

Tom Gjelten, NPR News, Washington.

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