James Harrigan

The Impact of the Asia Crisis on U.S. Industry: An Almost-Free Lunch?
• The large devaluations experienced by Korea,
Malaysia, Thailand, and Indonesia beginning in the summer of 1997 raised concerns that imports from these countries would soar while demand for U.S. exports weakened, causing U.S. industries to suffer.

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• As it turned out, manufactured imports from the four countries rose only slightly, and the decline in U.S. exports was not large enough to have a significant effect on trend output for most industries.

• The one exception to this pattern was the steel industry: there, sharply rising imports and falling exports led to a drop in output and prices.

• Overall, the United States enjoyed an
“almost-free lunch” in the wake of the Asia crisis. Cheaper imports benefited consumers, and domestic production and employment were largely unhurt.

hen the Asia crisis erupted in the summer of 1997, many forecasters predicted that one effect would be an end to the economic boom in the United States. Surely, it was argued, the drop in demand for U.S. exports combined with surging import volumes would finally be enough to slow the U.S. economy. It did not happen. Indeed, the Asia crisis’ overall effects on the United States were small.1 In terms of trade flows, total manufactured imports from the Asian countries affected by a currency collapse—Indonesia, Korea, Malaysia, and Thailand, which I will refer to as the “Crisis 4” countries—grew only slightly, while exports to these countries fell sharply (Chart 1).2 Although the overall effects of the Asia crisis on the United States were modest, they could have obscured other, larger effects in particularly vulnerable U.S. industries. Accordingly, this article looks beyond the aggregate data associated with the crisis and instead focuses on these potentially larger effects at the sector