Business Impact Of Japanese Earthquake And Tsunami

Unless you have been living under a rock since Thursday, no offense to those of you who actually do live under a rock, you know about the huge 9.0 earthquake that rocked Japan. If that was not bad enough, the earthquake was followed by a major tsunami that flooded much of Northeastern Japan. The events impacted most of Japan and will have a major impact on the Japanese government and economy for some time in the future. But how does this affect you and your small business?

Before I get started, I don’t want to overlook the human toll. I feel for the people of Japan and I hope that anybody who can be rescued will be, and that things will get back to normal as soon as possible. I also extend my condolences to anyone who lost a loved one in Japan.

Impact on Oil and Commodities

Most small business people put gas in their car and buy commodities like food (wheat, corn) and paper (wood).  Japan is a big importer of oil and buys many raw materials from other countries to produce electronics, automobiles, and heavy machinery.  The near term impact of this disaster is that many businesses in Japan are off line and will not be buying raw materials.  This is likely to bring down costs of commodities in the very near term.  Hopefully this means that gas and food prices will go down in the U.S.

Having said all of this, I would expect commodity prices to also swing higher, perhaps much higher, as Japanese industry comes back on line.  Companies elsewhere will try to keep up with demand for items that are traditionally Japanese, and once Japanese companies start buying commodities again, this will produce an above average demand.

Impact on Japanese Imports

It is likely that there may be shortages of goods produced in Japan and that the costs of existing inventory and replacement products will rise.  Many finished goods may be impacted, such as automobiles, computer accessories, industrial equipment, engines and parts, semiconductors, machine tools, and telecommunications equipment (http://www.worldsrichestcountries.com/top_us_imports.html).  There may be US-based manufacturers that try to keep up with the demand, but we may see some near-term shortages and price spikes.  Longer term we may see an oversupply of finished goods as Japan begins supplying the market again.

Impact on Nuclear Power

Many countries talk a good game about wanting to end nuclear power use, but when it comes down to it, it is hard to generate enough electricity for a world population that demands more and more.  The near term effect may be to slow or stop existing projects, or especially in the case of the US, prevent starting new projects in the near term.  People’s memories are short though and eventually nuclear power projects will start up again.

The near-term impact may be to companies involved with the nuclear industry and an increasing demand for energy alternatives for nuclear, such as solar and wind.  Unless something changes though, solar and wind will not create enough supply.  Natural gas may help somewhat but with increasing demand for natural gas, we may eventually find ourselves short on supply with rising prices.  Eliminate nuclear and it will put increasing pressure on fossil fuels, raising prices, until it makes economic sense to find more supply or spend more money on research and development for alternatives.

So in the near term we may see nuclear fade away, but in the longer term it will be back to try to quench our unquenchable thirst.

The General Economy In The Midterm

With the Japanese disaster, I see countries spending more to help rebuild Japan, which can only be a positive impact on the world economy.  Countries tend to reset their priorities after a disaster of this magnatude, until the bill collector knocks at the door again.  If the United States helps without offsetting the spending through cuts elsewhere, we could see rising taxes now or in the future.  I think government likes to go after company profit and tax it like crazy much more than going after the income or spending of individuals.  In either case rising taxes will have an impact on our economy for the negative, unless the government can also pay down debt.  Decreasing debt could see an increase in business investment especially with the aging population, as long as deficit reduction is attained mainly through spending cuts.

Of course spending cuts is somewhat bad for the economy as it affects jobs and programs.  Pushing jobs out of goverment and into the private sector may see an increase in overall productivity… so ultimately, who knows?

What do you think our economic future will look like after the Japanese earthquake?

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