The Effect of a Shrinking American Middle Class on Asia

The United States' economy has recovered, bringing new hope to Asia’s economy in 2016. The United States is currently the primary destination for the exports of Asia’s new economies. A strong U.S. economy helps to stimulate exports from Asian countries, including China. But on the other hand, America’s recovery has shown a different characteristic than it had before — as wealth disparities become greater, the middle class becomes smaller. This characteristic may also create certain negative effects, which may be even greater than when foreign investment pulled out of new economies after the U.S. Federal Reserve increased interest rates.

Recent studies from the Pew Research Center show that the wealth disparity in the United States is becoming greater. The middle class is showing a shrinking trend, and the structure of American society is at a turning point. The study showed that from 1971 to 2006, American families with mid-level income have reduced from 61 percent to 49.9 percent. At the same time, low income households have increased from 25 percent to 29 percent, and high income households have increased from 14 percent to 21 percent. As a whole, society is trending toward a major split.

In today’s globalization, the United States is positioned upstream, and its society is changing. These changes will quickly influence the new economic bodies situated mid and downstream, especially those that depend on the United States' economy. In the context of globalization, the widening of the wealth disparity is realistically a global phenomenon and is largely spread by developed countries. This makes upward mobility more difficult for the countries downstream.

There is fierce competition among most of the new Asian economies for a share of the United States' import market. Just take textiles for example. Textiles, like clothing and shoes, are Vietnam’s top export to the United States. This is also China's second largest export to the United States, with Bangladesh, Cambodia and Indonesia following closely behind.

The most direct effect that the widening wealth disparity will have on the consumer market is that the market will need more low priced commodities. This need has decreased opportunities for manufacturing countries to increase added value, and has even required them to reduce the value added in exchange for market share. Only with regards to foreign trade will up and coming economies be faced with even more severe dual pressures. On the one hand, in order to get a basic income, they must obtain a place in the market by lowering the price of goods. On the other, they must continuously satisfy increasing labor requirements. Under these dual pressures, there may actually be more people who have returned to poverty than have lifted themselves out of poverty.

If responses to either of these pressures lead to problems, it can cause an unstable political situation or social unrest. In recent years, the social problems that some Southeast Asian countries have been experiencing are essentially related to the inability of the government to effectively withstand the pressure of foreign exports.

When the financial crisis was just beginning in 2008, the new economies of Asia showed tenacious resistance and defense abilities. This is related to the lessons learned during the 1997 Asian financial crisis. Within those 10 years, new Asian economies were able to get through the beginning of the crisis by using even more rigorous currency exchange management and by keeping greater reserves of foreign currency.

But the world consumer economy depends on a basic structure that is perpetuated by the West. This basic structure has not experienced any fundamental changes, or more precisely, it is still in a state of change. Many new economies, including China, still have a great reliance on foreign exports, causing harm to these countries in the middle of a growing wealth disparity.

At the same time, changes in the structure of American society will make it more difficult for China’s economy to experience a turnaround. As a result, China’s economy will undergo more pressure in 2016 and beyond, which will bring a definite burden onto society. To this end, we must be conscious of this phenomenon and respond prudently.