By Cliff Montgomery – Apr. 18th, 2011
In late March, The Congressional Research Service (CRS) released a preliminary study on the recent earthquake and tsunami that has crippled Japan.
CRS reports are famed for being both informative and easy-to-understand. Yet strangely, these unclassified studies are not made directly available to the American public.
Below, The American Spark offers quotes from the report.
“The March 11, 2011, earthquake and tsunami that occurred in Japan followed by the nuclear crisis at the Fukushima Nuclear Complex, evacuations, and shortage of electricity are having a large negative economic impact on the country but a lesser effect on world markets.
“Japan has lost considerable physical and human capital. Physical damage has been estimated from $250 billion to as much as $309 billion, the latter figure being nearly four times as much as Hurricane Katrina ($81 billion) and roughly equivalent to the GDP of Greece and twice that of New Zealand. In excess of 28,000 persons in Japan are killed or missing, and more than 196,000 homes and other buildings have been totally or partially damaged.
“Earthquake-related events in Japan are still unfolding – therefore, any economic impact assessments are at best preliminary. Nevertheless, analysts expect that over the next quarter or so, Japan’s economy will contract and may fall into recession, but it may expand later in the year and into 2010 because of rebuilding activity.
“As the third largest economy in the world, Japan’s GDP at $5.5 trillion accounts for 8.7% of global GDP.
“Congressional interest on the economic side centers on humanitarian concerns, radioactive fallout reaching the United States, the impact on U.S. citizens and American companies in Japan, the effects on trade and disruptions to supply chains, and increased volatility in Japanese and U.S. financial markets, interest rates, and the yen-dollar exchange rate.
“The damage from the earthquake and tsunami is being compounded by the evacuations and uncertainty from the problems at the Fukushima nuclear reactors. Tokyo’s power supply is experiencing a shortfall of as much as a third of peak capacity, and the electrical grid is experiencing a current shortage of as much as a quarter of capacity.
“The earthquake also damaged plants and equipment far from its epicenter. Port facilities, sensitive electronic equipment, 2,126 roads and 56 bridges also were harmed. These were located in a wide area of the country that even reached Tokyo’s northern suburbs.
“The human toll also has been great with 11,734 persons killed, 16,375 missing, and another 2,877 injured (as of April 1, 2011).
“In Miyagi and Fukushima prefectures, 1,669 public schools—69% of the total—were damaged or have collapsed.
“Higher radiation levels are being detected in Tokyo’s water supply and in leafy vegetables and milk from around the area of the Fukushima Daiichi Nuclear Plant. Depending on how long the nation’s electrical generating capacity is impaired, how long and how wide an area of evacuation because of radiation danger is continued, whether the nuclear reactors are brought under control, and how quickly alternative sources can be found for critical electronic and automotive parts whose production has been curtailed, the negative economic effects could grow.
“In recent decades, Japan’s growth rate has lagged behind that of the world, so it has not been a major contributor to global economic growth. The net impact of the disaster on global GDP, therefore, is expected to be relatively small (about 0.5 percentage points less) with about half of that effect confined to Japan, itself.
“As for U.S.-Japan economic relations, it is likely that the impact of the earthquake and ensuing events on the bilateral economic relationship will be modest overall. However, the effects could be more profound in the near term and on specific sectors and firms for which trade and investment with Japan is particularly important.
“Japan plays a major role in global supply chains both as a supplier of parts and as a producer of final products. In this age of just-in-time production processes, even a small disruption in the provision of a single component can wreak havoc on an entire product line.
“Japan’s production of automobiles, semiconductors, and electronics is likely to be affected the most, but companies in the United States that rely on Japan for critical components such as electronic parts and batteries or transmissions for electrical vehicles also will be affected.
“Tourist arrivals from Japan also are expected to fall, as will the number of Americans visiting Japan.
“U.S. imports from and exports to Japan are temporarily being hindered because of shipping bottlenecks and the nature of the disaster. In the medium term, a slowdown in growth in Japan is likely to reduce U.S. exports there, but eventually rebuilding will require large amounts of construction supplies.
“If imports of certain products from Japan become scarce, China, South Korea, or other nations may gain at Japan’s expense.”
