If there is a recession in the United States, the overall effect to world trade will be only about 2%.

WHEN Second Finance Minister Tan Sri Nor Mohamed Yakcop mentioned that the Malaysian economy is less dependent on the US, and that we should look at our fundamentals and our own developments, it was something a lot of traditionalists could not readily accept.

This is however well borne out when we study the trade pattern in the last 10 years. The US used to handle 20% of the world’s container business 10 years ago. This has today declined to 9% of world trade. Therefore, if there were a recession in the United States, the overall effect to world trade would be only about 2%.

In terms of trade, China in the Far East accounts for 49% of world business, having grown from 35% in the last five years. The Middle East too has grown from 6% to 9%.

The key question confronting every one of us today is whether the US will go into a recession. History will show us that nobody likes to admit that they are in a recession. At the most they will say they are recovering from recession and the US is in a similar denial syndrome.

History will also teach us that while we talk about the recession in 1929, it actually started in 1927. Similarly, when the recession is confirmed in the US, it is only because they are beginning to recover from it.

However, the following factors definitely highlights that the US is already in a recession.

> WHEN the population cannot afford to buy houses that have been built. Today, there are 250,000 houses built in 2007 that are unsold.

Additionally, there were also 200,000 houses that were unsold before 2006. Similarly, car sales have dropped. Furthermore, the sub-prime mortgage issue highlights the inability of customers to look after the mortgages, leading to losses in the billions of dollars.

> IN infrastructure, the US today is badly handicapped. Their ports are heavily congested. A well-known transport authority has confirmed that congestion is costing them US$200bil (RM644.4bil) a year.

> IN train services, the French have developed a fast train, the Japanese have the bullet train and China has built a railway line to Tibet. A train service, at 300kph, is now under construction between Shanghai and Beijing, reducing travelling time from 16 hours to 6 hours.

However, in the States, nothing new has happened in their train services during the last 50 years, which has increased the cost of transportation.

> OIL crisis has hit the whole world but in the US, this has a more pronounced effect. This is because, their cars are not only oil guzzling, but the cost of oil would reach US$4 (RM12.88) per litre, which has made a lot of them travel less than they used to.

> IN terms of production, the US companies have all gone to China and in terms of IT, they are all outsourcing in India.

> IN terms of cars, Toyota has overtaken the American car manufacturers and Honda is sweeping the States as well. Fuji has replaced Kodak – all this will mean that the rest of the world is arbitrating from a more efficient point of view.

This probably explains why Americans are singing for a change to Barack Obama. They want a change as basic as from man to woman (in the form of Hillary Clinton) or white man to black man (in the make of Obama).

The current political developments in the States indicate that the US probably lost its focus since Sept 11, 2001 when the country became obsessed with Osama bin Laden, Saddam Hussein and now Iran.

And in the last six years, they became dependent on China for manufacturing and India for IT. How they will be able to redress from an external focus to an internal focus is probably what the next presidential campaign is all about.

Therefore, with the above reasons, I can better fathom why our Second Finance Minister feels that our economy will not be affected by any recession in the States in the next decade.

Tan Sri G. Gnanalingam is a prominent Malaysian businessman. He is the current executive chairman of West Port, one of Malaysia's leading port operators.

By G. Gnanalingam
The Star, 19.02.2008