What Japan Disruptions Mean for U.S. Firms

This article originally appeared on RealMoney on March 15 at 4 p.m. EDT

Looking a little deeper into the economic impact of the Japanese disaster on the U.S. economy, there are a number of factors to consider. I discussed one aspect, that pertaining to import substitution, in my article earlier today, "Japan's Exports and the Substitution Factor." Going beyond that more narrow focus, let's look at what some other economic implications might be.

Some of these implications are indeed direct, such as trade. Many of the things made in the U.S. require parts that are made in Japan. The AP has reported this afternoon that Subaru of America will halt production at an Indiana facility and that Toyota will reduce production at North American plants, because of decreased availablility of parts. A disruption in trade has directly observable impacts on our economy, and thus on employment.

However, perhaps a bigger worry is that the consumer might be shaken after the quake, along with business confidence in the U.S. This might limit hiring in certain industries, on fears that might not even be well-founded in evidence.

First, though, let's take a look at the most obvious and easiest-to-tackle issue: our exports to Japan. When one looks at just our exports to Japan, our economy might not appear to face much damage from the quake, at least at first glance. After all, U.S. goods exports to Japan, those most likely to be disrupted by infrastructure and transportation difficulties, were roughly $60 billion in 2010, or about 0.41% of our GDP. And nearly half (46%) of those goods we exported were commodities. Agricultural goods accounted for 21% of our exports to Japan, and another 25% were other basic materials. The rest were finished goods of various types, including pharmaceuticals, medical devices and aircraft. These last three areas together accounted for 18% of our exports to Japan, and the remaining categories not mentioned here all added up to the other 36% of our exports to Japan, with no particular category having a large contribution on its own.

Thus, when looking at just exports of goods to Japan, it might appear as though our economy wouldn't take such a big hit, even if all exports from the U.S. to Japan came to a complete halt. We also export services, which include items such as movies, music and airfares, and these exports, even if disrupted by economic conditions in Japan, might not have a direct tie-in to U.S. employment activity, as movies and music will still be made, even if we aren't selling as many of these services to any one particular country. Meanwhile, some larger airlines do not report canceling flights to Japan, so we might not see employment there be affected.