A Minute With...

international business expert Joseph L.C. Cheng

3/17/2011  8:00 am

Joseph L.C. Cheng, a professor of business at Illinois and an expert in international business, spoke with News Bureau reporter Phil Ciciora about how the catastrophic earthquake in Japan will affect an already-fragile Japanese economy as well as a global economy still trying to recover from the Great Recession.

Japan is the world’s third-largest economy. How devastating of a blow is this to the country?

image of professor joseph chengFirst of all, Japan has been mired in an economic downturn for about 15 years, and it’s only just beginning to inch back to recovery mode. So this is a really, really bad time for a devastating earthquake to occur, and it will be a very big blow to their economy. That’s beyond dispute.

But one thing that’s perhaps even more important than economic hurt is the psychological hurt this tragic event has inflicted upon the Japanese people. Right now, a lot of the factories are shut down, and it doesn’t look like they’ll be able to open anytime soon. When people don’t return to work after such a major event, there’s no sense of a return to normalcy. So that will have a huge psychological effect.

I’m also worried about the younger generation in Japan, who have been referred to as a “Lost Generation” even before the earthquake struck. Over the course of the last 15 years, this generation has become really discouraged and disenfranchised by their prospects, as they were never the beneficiaries of real economic growth. 

If you go to South Korea, you see a totally different mood. I’ve been traveling to both countries over the course of the last year, and it’s not difficult to notice that in South Korea, the young people in particular are very motivated and optimistic, because their country has been on a roll for the last decade or so, whereas Japan has been on a downswing.

And now this is just another blow to them and their country, and I’m really concerned what kind of long-term effect it will have.

After years of tepid economic growth in Japan, how big of a challenge will recovery be?

Japan just elected a new prime minister, so it’s not the best time for them to have such a big disaster. It’s doesn’t look good from a distance, and it’s really going to be a challenge as to how the Japanese handle this. 

But Japan does have a history of being able to rebound from great loss. So hopefully this will be another quick rebound. They’ve certainly faced tragedy before and have emerged stronger. I hope that’s the case this time.

Now that Japan has lost so many nuclear reactors, it likely will have to rely on other sources of energy for some time. How will this affect global energy prices?

Japan has been inching back to an economic recovery, so they’ve been using more energy recently. But it really depends over the course of the next few days upon what happens with the nuclear reactors, because it could potentially turn into an even worse situation.

If the winds shift and start blowing nuclear radiation toward mainland Japan rather than toward the ocean, it will start affecting the larger population centers. That has the potential to shut-off the economy in all of the industrialized cities of central Japan. So their energy needs would shrink dramatically, but obviously at the very steep price of the Japanese economy grinding to a halt.

But they’ll also need a lot of energy to rebuild, so it’s difficult to say one way or another how it’s going to affect energy prices. Clearly, the biggest consumers of energy in that region are China and India, and as emerging economies, they’ll likely continue to consume a lot of energy.

What effects from this catastrophe are we likely to see here in U.S.?

Japanese exports will, obviously, be greatly affected. So that means higher prices for Japanese goods like cars and electronics. A lot of U.S. tourists and businessmen travel to Japan; I would expect that to cease.

But U.S. exports to Japan will probably increase. Japan has always been a net importer of food, oil and other commodities, so this will just add to it. If the radiation problem gets worse, resulting in widespread damage across the entire country, that would mean a lot of the farmland wouldn’t be suitable for growing crops. So they’ll likely have to import a lot more food and crops from other countries, including the U.S.

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