EMOTION MAKES MARKETS LAGGING INDICATORS:

Start with trade. If Chinese growth slows (as is happening, though who knows by how much), many countries' exports will shrink. That's a big deal to some countries--especially emerging markets that rely heavily on commodity exports--but not to the U.S.

The Chinese export to us about three times as much in goods and services as we export to them. That isn't a problem; bilateral trade is not supposed to be balanced. But it means that China is far from our leading export market--nothing like, say, Canada or Mexico.

Here's the math: Over the first three quarters of 2015, the latest data available, exports to China made up less than 1% of U.S. GDP. Let's imagine that Chinese purchases of U.S. products dropped by 10%, an implausibly steep decline. (For reference, the drop from 2014 to 2015 was zero.) Even such an extreme event would cut U.S. exports by less than 0.1% of GDP--an amount beneath notice.

Yes, there is a secondary effect: Weakness in China can damage nations that rely heavily on exporting to China. And if those nations sag, they will buy less from us. So let's double the estimate. That would still cut less than 0.2% from the U.S. growth rate. More severe outcomes are possible, but unlikely. So a China-induced trade contraction should be on our worry list, but not near the top. [...]

What about oil prices? Here, it appears, the markets have even got the direction wrong. Ask yourself: When the price of something you buy goes down, does that make you better off or worse off? No, it isn't a trick question. The obvious answer is the correct one. Other things equal, each of us is better off when the prices of things we buy, including oil, go down.

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