It's common to read that consumers make up 70 percent of the US economy, which is the world's largest and certainly the largest for electronics. I can't confirm the figure, but Robert Reich, the economist who served as Bill Clinton's secretary of labor, repeated it in an item this week. Whatever you think of Reich, he's not known for throwing around numbers willy-nilly. So let's assume the 70 percent figure is at least in the ballpark.
If so, then some of the crowing this week from across the International Date Line is premature. True, booming economies in places like Indonesia, along with the cash-heavy bankers in China, contrast starkly with pictures of London burning and Washington running in circles. It is easy to think this week that Asia really does live in the future. Europe's no better than we are. Over the next 10 years, would you rather be in business in France or in Singapore?
But East Asia is bluffing. If 70 percent of America's economy is in the hands of American shoppers, East Asian electronics suppliers are particularly exposed — more so than resource-based regions like the Middle East — to a second American recession. Put most simply, if Americans don't buy gadgets, then multinational fabrication, assembly, and support operations start to sag.
With lead times measured in months, orders already in the pipeline for the American Christmas shopping season now face dramatically uncertain end markets. And credit, which had fueled a particular boom in high-end consumer electronics — plasma TVs, high-end gaming systems, and $500 smartphones — has evaporated, in some cases with the banks that underwrote the cards.
The doomsday scenario looks something like the one the auto industry faced in 2008. Cars, like electronics, have vast multiregional supply chains, so the collapse of an automaker ripples throughout a region. When Washington bailed out Detroit (a controversial decision at the time), it was to save jobs up and down the automotive supply system.
Electronics, though, is a whole separate order of magnitude. Instead of a domestic industry, it's a vastly international one. Where the auto industry bailout was a US government action to protect a (mostly) domestic supply chain, a crash in US consumption of electronics would have international repercussions. It would go beyond any one government's ability to prop up, and it would touch many more people in dozens more places.
A phone that starts as a PCB in Korea goes to a solderer in China. It then goes for final assembly to Vietnam and then to a big box store in Chicago, where it had better have a customer. And if that customer just saw a news story that the Dow is off 600 points and the country is broke, maybe he or she isn't feeling as strong a need to upgrade this year. If enough people do that and 70 percent of the US economy hiccups, electronics manufacturers will feel it more directly than other highly globalized industries.
So what's Asia's play? The good news is that East Asia has an interest in global recovery. Nations hosting the electronics supply chain need the American consumer to have disposable income. No one knows where the current drama is going, but we can probably bet that the real talk in Asia is about avoiding more damage in the US and Europe.
The electronics supply chain is one of the original globalized businesses. It's no longer clear which end is the tail and which end is the dog, and it's certainly not clear who is wagging whom. But it is, thankfully, clear to everyone that it's all part of the same animal.