Thanks to the highly successful Marshall Plan, which helped many broken European economies get back on their feet after World War II, the U.S. managed to create a massive new market for its exports. Over the next generation, almost every major U.S. firm opened a string of sales offices on the Continent, and for some firms those offices went on to deliver a solid portion of annual sales.

#-ad_banner-#But it’s been quite a while since Europe delivered real growth to U.S. firms. Instead, they’ve come to bank on Asia for sales expansion, especially in China and Japan, which collectively account for more than $14 trillion in annual GDP. That’s as much as the seven next largest economies in the world — combined. (That is, except for the U.S., which generates more than $16 trillion in annual GDP.)

These days, China and Japan are causing U.S. executives all kinds of headaches. Each country has a unique and growing set of problems. A few bad breaks could lead to serious headaches for regional sales offices.

China
Back in January, I noted that rising wages and a shaky banking sector were threatening to end China’s impressive string of years where economic growth always exceeded 7%. Since then, the situation has grown more concerning.

For example, Lombard Street Research, a London-based economic research firm, estimates China’s economy grew at a 6.1% pace last quarter, more than a percentage point below official estimates. That weakness has extended into 2014. The Markit/HSBC manufacturing purchasing managers’ index (PMI) fell to a seven-month low of 48.5 in February, which is the third straight monthly decline. That means the all-important manufacturing sector is actually contracting.

For U.S. companies, another headwind has emerged. According to The Wall Street Journal, “Two out of five companies polled (by the U.S. Chamber of Commerce in China) said foreign businesses are less welcome in China than in the past, while only one in 10 said they felt more welcome.” That’s a sobering thought for any company even thinking of entering the vast Chinese market at this point.

If China continues to show signs of slowing, U.S. companies with a high degree of China exposure may be forced to lower guidance. So you should assess your portfolio holdings now to be sure your China exposure is in check. Here are some companies with an unusually high degree of China exposure:

Las Vegas Sands (NYSE: LVS): This casino operator has a significant stake in Macau, accounting for roughly half of company sales. And though the island has yet to see a sharp slowdown, gambling is one of the first spending items to be cut in tougher economic times, as we saw in the U.S. in 2008 and 2009. (A similar concern could be expressed for Wynn Resorts (Nasdaq: WYNN).)

Applied Materials (Nasdaq: AMAT): This maker of semiconductor capital equipment generates more than a quarter of its sales volume directly in China. Shares have risen 50% this year, to a recent five-year high, thanks to expectations of 20% sales growth this year and 10% sales growth next year. A slowing China (and Japan) may lead to an earnings headwind. (A similar concern could be expressed for rival Lam Research (Nasdaq: LRCX), which has heavy China exposure thanks to its 2011 acquisition of Novellus.)

Beyond gaming and technology, a wide range of consumer companies have been counting on China for growth. It’s a savvy long-term move but may deliver indigestion in the near term.

Japan
The outlook for Japan is also growing worrisome. The country’s stimulus efforts, dubbed Abenomics (after Prime Minister Shinzo Abe), have been a necessary set of moves, as the moribund economy needed a jolt. And Japan’s economy has shown some responsiveness to the moves. Also, a commitment by major employers to give more-robust raises should give a boost to domestic spending. But Japan also is on the cusp of implementing a sales tax hike, which could dent consumer spending.

	Flickr/thejointstaff
	Japan’s stimulus efforts, dubbed Abenomics (after Prime Minister Shinzo Abe), have been a necessary set of moves, as the moribund economy needed a jolt.

And Japan is still an export-oriented economy, which has failed to get a great boost from a lower yen. Speaking about February export figures, Norinchukin Research Institute’s chief economist Takeshi Minami told Reuters that “Overall, exports remain sluggish and the situation is severe.”

Japan’s stimulus plans had better succeed, because that country still has two major problems. First, a decision to de-emphasize nuclear power has caused a surge in imports of crude oil and natural gas, swelling the trade deficit.

Second, Japan is still sitting on a debt bomb. Debt-to-GDP exceeds more than 200%, and only Greece’s plight is worse.

The only way to get out from under that debt burden is through faster economic growth. The International Monetary Fund (IMF) thinks the Japanese economy will rise a decent 1.7% this year but slip back to 1% growth in 2015. Abenomics needs to deliver more impressive growth than that for this bold experiment to pay off.

As is the case with China, you should look at what parts of your portfolio are exposed to Japan. In some cases, you’ll find companies with a large sales presence in both countries and throughout Asia.

Risks to Consider: As an upside risk, these two countries count on the U.S. and Europe for a large portion of their exports, and stronger growth in the West could help to offset domestic headwinds in the East.

Action to Take –> These two economies are so large that a deep collapse is very unlikely. But it’s increasingly clear that 2014 (and perhaps 2015) could represent cautious times, pushing discretionary spending well lower. Both the Chinese and Japanese governments would likely resort to stimulus to offset further weakness, but that can create an ancillary set of economic headaches such as rising debt or inefficient infrastructure spending.

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