The Economic Impact of a U.S. Slowdown on the Americas
http://www.cepr.net/documents/public...as_2008_02.pdf
Conclusion
The United States is currently running a trade deficit that virtually all economists recognize to be
unsustainable. At some point, the United States will have to move towards a more sustainable situation,
which implies increased exports and reduced imports. An economic recession such as the one that the U.S.
economy appears to be entering now is likely to play a role in that adjustment process. Plausible estimates
suggest that any such adjustment process is likely to have a substantial impact on the economies of the
U.S. trading partners, especially Canada, Mexico, and the countries in the Caribbean and Central America.
The reduction in exports from these countries to the United States will be large relative to the size of their
economies. Unless declines in these exports are offset by some other source of demand, in the worst case,
the falloff in exports to the United States could be sufficient to push some economies into recessions of
their own. Growth in both Canada and Mexico, for example, slowed sharply in 2001, during the last U.S.
recession, with real GDP growth in Mexico slipping to zero for that year. The last U.S. recession was
relatively short (March to November 2001) and mild in terms of lost output. The next (possibly current)
recession in the United States will likely be worse.4
The countries that will likely suffer most as the result of a reduction in U.S. imports are the same countries
with which the United States has implemented ?free trade? agreements in recent decades, including the
North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico, and
the Dominican Republic-Central America Free Trade Agreement, DR-CAFTA, which includes the United
States along with Guatemala, El Salvador, Costa Rica, Nicaragua, Honduras, and the Dominican Republic.
Meanwhile, countries that are less dependent on the United States, or more reliant on domestic demand,
will see smaller impacts of the U.S. recession on their exports and national GDP.