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What Will Be the Economic Impact of the Earthquake in Japan?

Posted on March 30th, 2011 | Author: Ted Margolis

The tragic natural disaster and the resulting atomic reactor breakdown in Japan have caused great human suffering and will also cause enormous economic and legal problems for both the Japanese people and everyone doing business with Japan.

Unofficial estimates of the economic damage in Japan are running at some $350 billion (U.S.).  This estimate does not consider the losses to businesses and financial entities doing business with Japan.  This means, for example, that insurance companies, reinsurers and their shareholders are in for a large loss.  How these carriers respond will be important.  If they contest claims, as they usually do, then substantial litigation will unfold.  If the carriers begin to liquidate portfolios to pay these enormous claims, the impact on the U. S. stock market could be felt.

The Japanese, as large holders of U.S. debt will most probably begin to repatriate these assets and this may cause a rise in both interest rates and inflation here in the U.S.

The displacement of supply chains has already begun.  Companies relying on Japanese made parts or equipment are now starting to feel the impact of Japan’s disaster.  This means that U.S. companies may not be able to comply with their own contracts to provide supply of parts or equipment.  If these companies have a poorly drafted supply agreement, without a force majeure provision, more litigation will ensue.

U.S. companies with Japan-related issues and Japanese companies with U.S.-related issues both need to be proactive and must develop strategic and legal plans to move forward in the wake of this disaster.

While we know the resilience of the Japanese people, through communications with our colleagues in Japan, it is clear that the entire nation appears to be in a state of shock .  While we all strive to assist our friends and colleagues in Japan, those shock waves are moving towards the rest of the world and will surely have a profound impact on us all.