Six months into the Asian crisis, economists are still debating how the financial meltdown will affect growth in the U.S. Two new studies present a mixed picture: While the collapse of Asian currencies may have a larger-than-expected impact on American exports, profits of U.S. companies could weather the storm. The reason? Foreign subsidiaries of U.S. multinationals make the lion's share of their sales in Europe, not Asia.
Exports' vulnerability emerges in a study done by Andrew B. Bernard of Yale University and J. Bradford Jensen of Carnegie Mellon University of America's recent export boom. From 1987 to 1994, inflation-adjusted U.S. exports grew at 8.2% a year. That surge, coming as American manufacturers streamlined and cut costs, has powered a wave of optimism about U.S. productivity and competitiveness.
But the export boom was not mainly driven by greater competitiveness, Bernard and Jensen conclude. Using plant-level data, they find that rising productivity at U.S. factories accounts for only 10% of the increase in exports. Instead, the dollar's late-1980s depreciation and strong income growth overseas "were the dominant source of the export boom." With the dollar now gaining strength--and Asian consumers on the ropes--their results suggest that U.S. exports could be hit harder than many forecasters anticipate.
Falling exports, however, may not drive down U.S. profits. Economist Joseph P. Quinlan of Morgan Stanley Dean Witter & Co. notes that exports account for only 24% of overseas sales by American multinationals. Those companies sell three times as much through overseas affiliates. And Europe accounts for a whopping 58% of such in-country sales by U.S. affiliates, vs. just 8% for Japan and 8% for Southeast Asia. With Europe poised for an investment-led upswing, "a number of American companies are positioned to escape the pain of Asia via greater sales growth in Europe," Quinlan says.