When Americans woke this morning to the news of a severe earthquake that ruptured Japan and set off a tsunami wave heading toward Hawaii and the California coast, no doubt thoughts turned to the safety of Japan’s people, and those affected by the earthquake and the threatening path of destruction. As the world shifts toward solutions to help these affected communities recover from the natural disaster, invariably there will come more questions. How has the earthquake in Japan affected global economy, and what does this mean for the rest of the world. While this is not the first devastation to hit the planet – and we have seen quite a bit in recent years – it is important to note that different events present different outcomes.
In January, 2010, a seven-point magnitude earthquake nearly destroyed Haiti. The result severely damaged the country’s communications infrastructure and hospitals, and greatly affected the nation’s agriculture. One year later, Haiti is slow to recover from the disaster despite the worldwide call for aid. Where Haiti did not have the strong economy of a world power like Japan, it is still debatable as to how much more quickly Japan will be able to rebuild. Early reports with regards to the earthquake and international stock markets have shown dramatic losses in several countries. The German DAX fell nearly seven thousand points, while US Treasury ten-year yields declined to a record low for 2011. Time will tell how the market will stand once the dust settles.
How will this natural disaster impact global trade? How does any devastation affect the economy? In the case of Japan, which is the third largest economy in the world and top exporter, one can estimate that her major trading partners will see an immediate shortage of goods. As one of the top consumers of crude oil, suppliers may find negotiations for selling oil to the island nation paused while it is determined what Japan needs first in order to survive. Business websites and wires have reported drops in prices on agricultural commodities like grains, and with certain global currencies depending on the strength of the yen, it is important to watch the stock market for changes.
With a major trade partner crippled, other economies will experience price fluctuations and likely search for alternative countries until Japan is stabilized. What is important here, however, is the preservation of the country and her people. Natural disasters tend to bring global communities together for guaranteed relief, and here’s hoping the world responds to Japan’s call.