Can the World Survive US Downturn?

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Greg Baker / AP

A family emerges from a Dior store in Beijing. After generations of poverty, many Chinese can now afford luxury goods

Finding an empty table at a Starbucks in Hong Kong on a Sunday afternoon these days feels like winning the lottery. So does getting a reservation at a good dim sum restaurant or renting an affordable apartment. While the U.S. suffers the convulsions of an impending recession and massive wealth destruction, here the malls are stuffed full and the streets bumper-to-bumper with BMWs. The good times keep rolling, and not just in Hong Kong, but across much of emerging Asia, from Shanghai to Mumbai. Sure, the U.S. turmoil has had some impact — jittery investors have knocked back stock markets from last year's lofty heights — but in general, the story of America's economic woes has been confined to the morning newspapers.

Recession? What recession?

In the past, any downturn in the U.S. economy would send Asian policy makers, businessmen and workers into cold sweats. The reason is that Asia has been so dependent on exports to the U.S. that any slowdown in demand in the American economy inevitably dragged down Asian growth as well. In recent months, however, there has been a debate raging among economists over whether the forces of globalization have weaned the rest of the world off its heavy reliance on the U.S. The hope has been that the global economy can continue to grow quite nicely even if the U.S. fell into recession.

So far, that seems to be true, at least here in Asia. Though the exact extent of America's downturn is still uncertain, the early signs tell us that Asia isn't as reliant on the U.S. as it once was. "Economies in Asia will see potential to grow at reasonably fast rates," says Robert Horrocks, head of research at fund management firm Mirae Asset Global Investments. Nigel Richardson, chief investment officer for Asia at AXA Investment Managers says that "the U.S. is still the driving force of the world economy" but "Asia is probably far more resilient than it would have been in the past."

Why is that? One theory is that the region has enough centers of growth of its own — mainly, the roaring economies of China and India — that trade within Asia can drive the region's GDP onwards even if the U.S. economy wanes. The idea is called decoupling, as if the continent has just extricated itself from an unhappy relationship. By this reckoning, America just isn't as important to the region as it used to be.

But can that possibly be the case? Can the U.S. really become economically irrelevant?

On the surface, decoupling seems outright fantasy. The U.S. economy is three times bigger than the next largest (Japan), and 15% to 20% of the exports of most Asian countries head to the U.S. The Asian development bank, in its recently released 2008 outlook on Asian economies, showed there is a clear link between retail sales in the U.S. and other industrialized countries and Asian exports, since Asia manufactures and ships so many toys, shirts, TVs and other consumer items to America. Any retrenchment of U.S. consumer spending will, therefore, take a bite from Asia's export growth. Though trade within Asia is increasing rapidly, the goods shipped between Asian countries tend to be components or raw materials for final products, which eventually get sent off to the U.S. or Europe.

Asia, then, is as coupled to the U.S. as it always has been, perhaps even more so. Signs that a U.S. slowdown is rippling through Asia are already apparent. In March, growth of Taiwan's export orders slipped under 13% from a strong 18% in February. Keeping Asian economies bubbling without a thriving and spend-happy U.S. looks like trying to win the Super Bowl without your MVP starting quarterback.

Yet the ADB's growth estimates for 2008 are nevertheless pretty perky. Overall, Asia's economies are expected to surge 7.6% In 2008. The U.S. slowdown is dampening Asia's prospects — last year, Asian economies grew 8.7%, the fastest rate in nearly two decades — but not enough to create anything close to a major downturn. China's GDP growth is projected to clock in at 10% and India 8%.

Maybe we don't need that MVP after all.

It's not that the U.S. and Asia are somehow more loosely linked. With increasingly interconnected global manufacturing and financial systems, the influence of the U.S. isn't going to just vanish. However, Asia's developing economies are becoming so advanced that they can generate their own growth. It is domestic demand and investment that are protecting Asia's economies from the U.S. recession. Asians simply have more money to buy the TVs, cars and houses to keep their own economies roaring on. Wages in China's urban areas, for example, jumped nearly 19% in 2007. "It is the internal dynamics that are giving Asia its dynamism," says Ifzal Ali, chief economist at the ADB in Manila.

This is a good thing. Eventually, consumers in China and India will begin to compete with those in America for the title of engine of world growth. This might mean that the U.S. economy doesn't play the dominant role it has in the world over the past six decades, but it does mean a healthier global economy. With more sources of growth, a sick America can no longer send the rest of the world into the hospital ward.

Common Currency is a column on global economics by Michael Schuman that appears weekly on TIME.com.