JEFFREY BROWN: Partisan shots were fired in Washington and on the campaign trail today over how to bolster the U.S. economy and protect it from Europe’s looming debt woes.
The day began with a presidential press conference.
PRESIDENT BARACK OBAMA: Good morning.
JEFFREY BROWN: President Obama had economic troubles on his mind this morning as he took to the White House briefing podium five months before Election Day and urged European leaders to take action to deal with their growing crisis.
BARACK OBAMA: They have got to stabilize their financial system, and part of that is taking clear action as soon as possible to inject capital into weak banks.
Just as important, leaders can lay out a framework and a vision for a stronger eurozone.
JEFFREY BROWN: The president made clear that the fortunes of the U.S. are linked to Europe’s.
BARACK OBAMA: If there’s less demand for our products in places like Paris or Madrid, it could mean less businesses — or less business for manufacturers in places like Pittsburgh or Milwaukee.
JEFFREY BROWN: President Obama’s call to European leaders came after several days of tough blows at home and abroad. The most recent unemployment report showed weak job growth. And news came that Spain would likely ask the Eurozone for help recapitalizing its banks.
That would make it the latest E.U. member nation to seek financial assistance. In addition, there was new concern over China. The country’s central bank just decided to cut interest rates in the face of a slowing economy.
This morning, the president also took the opportunity to criticize congressional Republicans for wrongly focusing their recovery efforts on tax cuts.
BARACK OBAMA: The private sector is doing fine. What they should be thinking about is how do we help state and local governments, and how do we help the construction industry, because the recipes that they’re promoting are basically the kinds of policies that would add weakness to the economy — to the economy.
JEFFREY BROWN: Republicans were quick to respond.
House Majority Leader Eric Cantor.
REP. ERIC CANTOR, R-Va.: Are you kidding? Did he see the job numbers that came out last week? The private sector is not doing fine. And, frankly, I would ask the president to stop engaging in the blame game. It’s not because of the headwinds of Europe. It’s not — despite his attempt and his party’s attempts here in Congress, it is not because of House Republicans.
It’s because of the failed stimulus policies and other items in his agenda that small businesses in this country just aren’t growing.
JEFFREY BROWN: And on the campaign trail in Iowa, Mitt Romney said the president is — quote — “out of touch.”
MITT ROMNEY (R): For the president of the United States to stand up and say the private sector is doing fine is going to go down in history. It’s an extraordinary miscalculation and misunderstanding.
JEFFREY BROWN: In the Oval Office a short time later, the president sought to clarify his remark about the private sector.
BARACK OBAMA: The economy is not doing fine. And that’s precisely why I asked Congress to start taking some steps that can make a difference.
JEFFREY BROWN: As sparring continued over policies to spur U.S. economic growth, the week made it even more clear that politicians, as well as businesses around the country, must keep a wary eye on Europe’s woes and signs of a further global slowdown.
And we take our own look now at the global impact on U.S. economic growth. We’re joined by Nariman Behravesh, chief economist with IHS, an economic and industry forecasting firm, And Drew Greenblatt, president of Marlin Steel Wire Products, a Baltimore manufacturing company that exports to 34 countries around the world.
Nariman Behravesh, start with you. Where exactly do the links between, say, Europe and the U.S. show up? Where are the concerns for our economy?
NARIMAN BEHRAVESH, chief economist, IHS Global Insight: Well, there are two basic linkages between the U.S. and Europe. One is exports to Europe.
The good news is, at the national level, they’re actually not that big. We only export 2 percent of our GDP to Europe, basically, to the eurozone. Compare that with 70 percent of the economy that is consumer spending. So it’s fairly small. That’s one link.
The other is the banking system. Here, the vulnerability is a little bit bigger. Any kind of pullback by European banks or credit-tightening in Europe could have global ramifications, including for U.S. banks. Again, good news is U.S. banks are reducing their vulnerability to Europe and the European credit situation.
But, still, that vulnerability is there.
JEFFREY BROWN: Drew Greenblatt, are you in the export business, so how — you make the link for us. How specifically do the economic troubles in Europe affect your company?
DREW GREENBLATT, president, Marlin Steel Wire Products: It’s not good.
When the Europeans are slowing down, that means they’re buying less. And that’s not good for us in terms of growing our business and hiring more people. However, South America, Canada, Mexico, Asia is still plugging away. The American economy is still plugging away. So Europe going down and muddling is not good for anybody. And it’s troubling. And we need them to get healthy.
JEFFREY BROWN: Drew Greenblatt, just fill that in a little more. What do you hear from European clients? What do they tell you, and, therefore, how does it translate, well, specifically to jobs?
DREW GREENBLATT: There’s uncertainty. They are very scared.
They’re concerned about the future. And when you are — when you are uncertain, you hesitate. And hesitation is bad for business, because what that means is, you are not going to hire the next person. You’re not going to buy more equipment. You’re not going to be bold to grow your company.
And that means that there is going to be less orders sent to America. That means there’s going to be less jobs for us to create to fulfill those orders that are not coming from Europe. We need Europe to be vibrant and growing, so that we can have a good client, a good prospect to sell to.
JEFFREY BROWN: Now, Nariman Behravesh, Mr. Greenblatt brought up China and Latin America, but there are also concerns there. China, as we said in our setup, and Brazil has had a slowdown in its economic growth. What’s your assessment of how that may impact the U.S.?
NARIMAN BEHRAVESH: Well, again, there will be an impact on export. We know that because we’re going to be exporting less to Brazil, less to China and so on.
In fact, China and the slowdown in China may be more troubling to many U.S. companies, because so many of them have developed a growth strategy around China. So, in that sense, China may be more important than Europe almost to the U.S. economy.
Let me just reflect on one positive aspect of all of this. And that is, because of the weakness in China, because of the weakness in Europe, oil prices and commodity prices, food prices have all gone down. This is good news for U.S. consumers. It means there is more money in their pockets and they will spend more.
So, in that sense, it’s not all bad news.
JEFFREY BROWN: Well, staying with you, Nariman, we’re all happy to have the good news, but on China specifically, is that sort of a surprise for a lot of companies, because so much of the U.S. economy has been based on — or at least requiring continued very strong growth in China? So where does that leave people now?
NARIMAN BEHRAVESH: Well, I think it gives them pause, obviously.
And it makes them a little more careful about putting all their eggs in the Chinese basket, so to speak. I mean, I think everybody expected China to grow 8, 9, 10 percent. And, this year, I think they will be lucky at some level to grow 7 percent. They’re slowing very dramatically, mostly because — well, there’s really two reasons. It’s like a double-whammy, if you will.
One is the fact that the global economy is slowing, U.S. is sluggish, Europe is in a recession. But the other is the Chinese had a real estate bubble, and the government tried to deflate it or burst it. And that is hurting their growth.
So you have got a domestic source of weakness and an international source of weakness, export sort of source weakness for China. So it is a sort of double shock, if you will, that they are being hit with.
JEFFREY BROWN: So, Drew Greenblatt, you want to fill a little bit more about how you — how this affects you, China specifically with a business like yours and what you are hearing from other companies?
DREW GREENBLATT: Well, we’re bullish about American manufacturing. We’re bullish about the prospects of America.
We are — our country has a very good situation, in that we have intellectual property rights. We have the rule of law. So these things are really helping factories right now decide where they’re going to put future factories. Companies are making decisions now: Do I put my next plant in China? Do I put my next plant in Mexico? Do I put my next plant in Cleveland?
And I think a lot of people are reconsidering where they are going to be putting their plants in light of the slowdown in China, in light of the slowdown in Europe. Our country is poised for good things, I think, in the future. And I think, right now, we’re at an inflection point.
And if we make a couple positive changes internally, we’re going to attract a lot more business and a lot more factories to our country. We’re shipping more now to China than we do to Europe. And I expect that to grow, because I think the Chinese economy will continue growing.
We — but Mexico and Canada are definitely our biggest markets.
JEFFREY BROWN: And, Nariman, briefly, to close here, how much does all this uncertainty over American politics, what we started our show with, the fighting and the infighting that no doubt will continue, how much do you hear that affecting businesses, the people you talk to?
NARIMAN BEHRAVESH: Well, clearly, they’re very worried about so-called fiscal cliff at the end of this year.
But, that said, I think our view is that nobody in Washington wants to be blamed for killing the economy. So they will come together and, in fact, come up with some kind of compromise that sort of basically drags out or phases out the — or phases in the austerity.
Just to paraphrase Winston Churchill, Americans can be counted on to do the right thing after they have tried everything else. And I think we’re in one of those situations in Washington these days.
JEFFREY BROWN: All right, a hopeful close for. . .
DREW GREENBLATT: If I could add, if I could add. . .
JEFFREY BROWN: Yes, real quick.
DREW GREENBLATT: If I could add, that fiscal cliff is a big deal. It adds a lot of uncertainty to American business.
And, at the end of this year, we’re going to have almost 20 percent increase in taxes and a takeaway of deductions. This is very troubling to American factories and American entrepreneurs.
JEFFREY BROWN: Okay.
DREW GREENBLATT: Job creators right now are pausing. And we need some clarity. We need Washington to make some decisions in a positive way to improve our future economic climate.
JEFFREY BROWN: All right, Drew Greenblatt in Baltimore, Nariman Behravesh, thanks very much.
NARIMAN BEHRAVESH: Thank you.