The ladies of IWF would like to express our deepest condolences to those affected by the March 11th, 2011 natural disasters. We are keeping those abroad and at home in our thoughts.

At 8.9 magnitudes, it’s the 5th strongest earthquake in the past 111 years. Streets are flooded, skyscrapers have crumbled and Japanese commuters are trekking home as the public transit comes to a standstill. American producer Joseph Thame wondered if the “concrete buildings were made of jelly” as he exited a Japanese train platform.  

Natural disasters are devastating for both humanity and national economies. Events like todays sometimes shed light on how interconnected countries are economically. Quakes and tsunamis may leave us wondering: are the benefits of free trade worth the costs of globalization?  

Waves have already hit Hawaii, Oregon and California. The tall surfs may have passed, but the U.S. shouldn’t exhale just yet. The economic forecast predicts waves of uncertainty, dips in the stock market, wobbly energy prices and instabilities for foreign businesses. A minor economic quake is part of the aftermath.  

Singaporean Nikkei, Hong Kong’s Hang Seng and Europe all saw their stocks fall slightly. Asian insurance stocks were the first to take a hit. The market closed today at its lowest level in five weeks. MSNBC wrote:

Japanese stock futures fell 2.4 percent after the earthquake, but market players said the slide may not be too deep because major cities and manufacturing facilities were not affected.   

Thankfully, it appears the stock market dive is only temporary. Economists predict that Japanese shares will decline in the short run while foreign investors adjust to the heightened risks and uncertainties.  

The global energy sector is also expected to suffer. Japan is “the world’s third-largest oil consumer”. Currently, two Japanese refineries are up in flames.The WSJ reports:  

While the earthquake could shutter some of Japan’s refining capacity and hurt the country’s economy, a shutdown of nuclear plants could also result in utilities burning more oil.  

Combined with the Middle Eastern turmoil, there’s a strong possibility that the U.S. will see increases in oil prices. Obama is scheduled to speak about these energy prices Friday morning. Instead of focusing on solutions to offset the short-term volatility of oil markets from national disasters and civic unrest, President Obama might want to increase our access to U.S. oil reserves, both onshore and offshore. One possibility would be decrease regulation on offshore drilling in the Gulf.  

International businesses will also be hurt by the disasters. Japan’s greatest export is automobiles. Many car facilities in Japan have experienced physical damages. The quake’s physical damages to manufacturing facilities will take a toll on the industry’s thousands of domestic employers. Internationally, car importers will be affected, and the U.S. is on this list.   

The initial economic effects may be shaky but The Economist’s comparison to the 1995 Hanshin quake should lift our spirits:  

The cost [of the Hashin quake] was put at Y10 trillion ($100 billion). Industrial production dipped only briefly. The stockmarket fell by 8% in the week following the quake, but rose later. Tohoku, the north-east region of Honshu island where today’s quake struck hardest, accounts for 8% of the country’s GDP. The area is less densely populated than around Kobe, and less industrial. [Today’s]quake, though very much larger, may prove less damaging, though horrific enough for all that.

Just like the environment, globalization has its ups and downs. In the grand scheme of things, we need to remember that on a daily basis, we truly benefit from being part of the global marketplace. The perks of globalization definitely outweigh the occasional setbacks. The Pacific storms will pass and the economic waters will calm soon enough as well.