Economic aftershocks from Japan’s earthquake

As the world pulls itself out of recession, a major disaster hits the third largest economy. On our interconnected planet, can we stave off another crisis together?

This week, Japan is reeling from the triple impact of earthquake, tsunami and nuclear disaster. Meanwhile, the rest of the world looks on in horror at the pictures and reports from the country's northeast coast.

But in today's interconnected world, such a serious blow to Japan, the world's third largest economy, affects us in more concrete ways, too.

In Derbyshire and north Wales, for example, the Toyota car plants have cut output because of a lack of components from Japan. Toyota, a Japanese company, is the world's largest car manufacturer and has closed all production in its homeland

Meanwhile, in America, there are fears that motor vehicle and computer manufacturing will be stalled if parts, including semi-conductors and telecoms equipment, don't arrive from Japan.

Toshiba's shares slid 20 per cent as five of its factories halted production of computer chips. Even Burberry, the British luxury clothing company, lost investor confidence because it sells so many of its goods to Japanese consumers.

Speculation that shipping will have less business in and out of Japan also affected the markets, and companies involved in the nuclear energy industry across the world have lost value.

All this could affect jobs at a time when the world is just pulling itself together after the financial crisis and the recession that followed it.

'The world economy is still in a state of convalescence after the 2008-9 crisis,' writes economist Anatole Kaletsky. He believes we are 'unusually vulnerable to the loss of economic activity resulting from the Japanese devastation.'

In the first two days of this week the Japanese stock market lost £385bn, but yesterday it rallied again. And construction companies are looking forward to a huge boost from the reconstruction effort, which could provide a period of growth towards the end of this year. The Japanese will then be in a position to spend, export and invest again, even if they stop over the next few weeks and months.

Surviving together
So commentators are pointing to hopeful signs of economic life among the rubble. And even the pessimists say the world will do better if we maintain our trading and other links with the disaster-hit Japanese.

'A highly interdependent global economy is more susceptible to disruption than a simpler one,' Kaletsky writes. 'But it is also far more efficient and innovative'. For any nation to react by becoming self-sufficient would be unrealistic and old-fashioned, like 'disengaging from the internet.'

You Decide

  1. Do you feel uncomfortable discussing money and economics while people are still being pulled out of the rubble? Should you?
  2. Is it desirable to be a self-sufficient nation, where we produce everything that we use or consume? Is it even possible in today's world?

Activities

  1. Research Japanese investment in the UK and make a map to illustrate its importance.
  2. Imagine you are a volunteer architect or engineer going to help the charityhere.
  3. Write a letter or email home about how you feel about your work.

Some People Say...

“What happens far away is of no interest to me.”

What do you think?

Q & A

Should we be thinking about money at a time like this?
Well, Japan is a large economy and an important investor and exporter. These questions affect the welfare of the Japanese people as they recover from the disaster, and the welfare of all of us around the world.
And have there been any upsides for the world economy so far?
The only temporary good news was a lack of demand for oil from Japan, a large and important user of energy. That caused a momentary dip in the oil price, which has been pushed high by turmoil in the Middle East.
Lots to worry about before we celebrate though?
Indeed. The Japanese central bank has pumped £114bn into the economy, and they will pay for most of the reconstruction costs – that could boost the economy but could also unbalance the books and bring on a debt crisis.

Subjects

PDF Download

Please click on "Print view" at the top of the page to see a print friendly version of the article.