By Matthew Kerkhoff
Understanding the relative scale of various components in our economy is critical if we want to be able to forecast the impact of changing conditions. Without knowing how the small puzzle pieces fit together to form the bigger picture, there’s a good chance we may overreact to irrelevant information, or be too complacent when critical changes are upon us.
A good example of this that has been discussed recently is China. The ongoing transformational slowdown in China came to the forefront last August when China devalued their yuan. Without realizing that China had allowed the yuan to appreciate for the past decade, making the devaluation more benign, many market participants immediately assumed that China was in trouble, and US economy was doomed.
While China plays an outsized and critical role in the overall economy, in terms of direct trade, China only accounts for 7 percent of total US exports, which is ... Log in or subscribe to continue reading.