SPEAKING
FREELY The battle to secure
demand By Max Fraad Wolff
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The growing interest
of China and other regional powers in securing
access to key commodities, and exerting influence
to that end, has become increasingly apparent.
The most discussed examples have been oil
and gas ventures, followed by metals, minerals and
bilateral trade deals. These developments well
deserve the effort, ink and chatter they have been
receiving. Supplies are essential to production,
distribution and the realization of revenues. It
is necessary to explore the
political implications as
well.
However, there is another side to
the supply-securing activities which has
languished in the darker recesses of public
awareness: namely, the efforts of key economic
players to secure demand.
Many diplomatic
visits and signed agreements in recent years have
been primarily concerned with emerging states and
regional players securing demand for their
products. This is equally urgent for the players
involved, and represents a defensive response to
today's global imbalances and an inevitable
eventual rebalancing.
The 14% increase in
the size of America's negative net international
investment position (NIIP) in 2005 alone to
negative US$2.7 trillion underscores the existing
lack of equilibrium. The NIIP measures the net
difference between US ownership of foreign assets
and foreign ownership of US assets.
What
are the needs of some of the big demand-seekers?
China, reliant on manufactured exports, needs
contacts, agreements and trade relations to
facilitate a reduction in its dependence on US
consumer demand.
India, Russia and Brazil
need to secure supplies and effective demand for
their exports. Diversifying the consumer portfolio
is a pressing and central need for all exporters
of raw, intermediate and final goods.
The
US has been consuming well beyond its sustainable
capacity for years. Thus, massive foreign capital
is required and massive influence achieved with
these borrowed monies. Those with regional - or
greater - aspirations must find a way to mitigate
US influence and risk exposure to America's
overdue correction. This can come in any number of
forms.
The increasing discussion of
official reserve diversification away from dollars
is a hunt for yield, monetary policy independence
and reduced reliance on the US currency. A falling
dollar implies a risk of falling global purchasing
power from earnings born of exports to the US.
Rising savings and falling debt-fueled and
home refinancing spending must be factored in by
those who export to the US. Thus, the search for
other sources of demand, domestic and
international, is slowly emerging as an urgent
political and looming economic requirement.
Revenue and growth promises to be more robust
outside of the US in the years to come. Thus,
establishing ties, cutting deals and seeking
influence will be required of any regional or
global economic power.
Oil price increases
since 2002 have redistributed $125 billion in
purchasing power from the US to oil exporters. Oil
exporters have received an estimated $400-$500
billion in increased income over the past four
years.
The energy exporting region of the
Middle East and North Africa is presently endowed
with an increase of $250 billion in revenue from
oil and gas price increases according to a 2006
World Bank report, "Prospects for the Global
Economy".
The same report forecasts
developing-world economies will grow at twice the
rate of developed economies over the next four
years. Those enjoying the windfall receipts from
high commodity prices cannot domestically produce
enough to absorb the extra income being generated.
They must import vastly more, and are. This is
occurring in a world economy long on excess
capacity and short on effective demand.
Rising energy and commodity prices and
redirection of foreign direct investment are
shuffling likely sources of future demand as well
as production and jobs. All the much-discussed
outsourcing creates demand for products where the
jobs migrate.
At some point, this
phenomenon should put downward demand pressure on
the places the jobs are leaving. Thus,
theoretically, the search should be on for
bottom-of-the-pyramid products to sell to the
developing world. It is: and this is one
manifestation of the hunt for demand, which is
driving many of the new initiatives toward oil
exporters and developing nations. The urgent
search for demand especially ahead of a protracted
rebalancing away from US consumption is central.
The addition of demand to presently
supply-dominated analyses of the evolving
international economy is required. Falling free
trade momentum and globalization support in the US
and globally makes this process more urgent and
politically tense.
Investment by
multinational corporations, foreign direct
investment flows and bilateral and regional pacts
increasingly reflect the desire to establish and
maintain common markets for goods. Thus, the
urgent search for demand lurks in the shadows
behind the endless discussions of energy supply,
outsourcing and free trade momentum.
Max Fraad Wolff is a doctoral
candidate in economics at the University of
Massachusetts, Amherst and managing director of
GlobalMacroScope. This work was written for www.GlobalMacroScope.com.
(Copyright 2006 Max Fraad Wolff. Used by
permission. )
Speaking Freely is an
Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are interested in
contributing.
