America’s purchasing managers
have a slight cough. Fewer jobs than expected were created in the labor markets.
And housing prices have fallen in a number of cities. Alarming conditions, crash
scenarios and an apocalyptic mood are already circulating for the U.S. economy
- and for the world. Even the German economic recovery is at risk.
At least that’s what the market-crash
prophets are predicting. They could, however, prove doubly wrong. For one thing,
the United States is still somewhat far from the next real recession. And
secondly, this needn't worry us now as it has in the past, because the global significance
of the U.S. economy has decreased dramatically. Today, assuming that the global
economy is at risk when U.S. purchasing managers are in a bad mood may be
taking this traditional reflex to absurd lengths.
Almost On Par With China
It’s true that American
economic growth has recently slowed. Companies are reluctant to hire large
numbers of new people. High oil prices are a burden. And the real estate market
is feeling the after-effects of the busted bubble. But these factors alone don't
mean that the next recession is coming.
More than companies in almost
any other country, those in the U.S. took great advantage of the economic
crisis to improve their economic fitness. Since 2008, U.S. productivity has
soared and unit labor costs have fallen sharply. Profits are even higher now
than during the peak periods before the crisis. And, what’s more, the dollar is
40 percent cheaper on average than it was ten years ago - which has given U.S.
companies an enormous boost in competitiveness. Take export figures: U.S. exports
snapped back to pre-crisis levels faster than the much-lauded German exports. U.S.
companies are also investing much more in high-tech products than before the
New claims for unemployment
benefits have dropped so much that, based on past experience, after a small
delay, the unemployment numbers should also begin dropping. Another positive
sign: On balance, all of this should lead to an expansion of the U.S. economy, albeit
a more moderate expansion than during untroubled times, as is often the case
after an economic bubble bursts. The question is whether we should be
particularly disturbed by all this.
Sure - America is important. It’s
just that the financial crisis has dramatically accelerated the trend toward a
shift in the global economic balance - a shift away from the United States. Already,
the fact that economic output in many emerging countries has remained
unaffected during the crisis has resulted in the significantly diminished U.S.
receiving a much smaller share of global GDP. The same is true for the import
market. Ten years ago, Americans still bought nearly 20 percent of global
imports. Now they buy just 12 percent. In the year 2000, the American quota was
five times that of China’s. Today the two countries are just 3 tiny percentage
The year 2009, the year of
the U.S. crash, was the first time more newly-registered cars in China than in
the land of the Big Three. According to Veronique Riches-Flores, economist with
the Socièté Générale in Paris, two years later, the Chinese are registering 50
percent more new cars than the Americans. All in all, however, the Chinese
still only spend a fifth of what Americans spend. On the other hand, their
spending is growing five times as fast. Result: 2010 was the first time China
contributed as much too global growth in consumption as the United States. Ten
years ago, the U.S. contribution was five times higher than China’s.
Investment trends are even
more impressive, with the Chinese contributing seven percentage points to
global investment growth in 2010, while U.S. companies contributed less than
one percent. Also in terms of foreign direct investment, China is now on par
with the U.S. And also historic: In 2010, foreign firms invested more in the
Middle Kingdom than they did in the United States. Not long ago, this would
have been unthinkable.
Chinese gains during the
recent crisis have also put in perspective the impressiveness of the American
economy's decades of immense influence on the rest of the world. While the U.S.
has slipped into a massive recession, China, India, and others, supported by
large economic stimulus packages, continued
to grow almost unconcerned.
The German economy has been
booming for two years, although German exporters are exporting less, not more, to
the U.S. than in 2005-2006. So the U.S. is definitely not the source of the
economic upturn. Since 2007 alone, German exports to China have more than
doubled. Here also, we appear to be entering a new era: Ten years ago, Germans
exported five times more to the United States than China. Now, China is on the
verge of leaving the U.S. behind as an export market - and as a foreign
All of this would probably
not be enough to protect us from more severe consequences if the U.S. were to
slide into a deep recession; the country is still too important for that. And
of course, the latest crisis also showed how quickly a systemic financial
crisis can jump from New York to Germany. But at the moment there are neither
signs of recession nor a bubble like the one on U.S. real estate markets before
2008. Investment in construction has fallen to a measly 2.5 percent of total
economic output - there’s not much left to collapse. Which means that the new
rule applies even more emphatically: On a global scale, the U.S. is just a lot
less important than it used to be.
Therefore, agitated knee-jerk
reactions and obsessing over each and every U.S. economic indicator is
correspondingly absurd. Also absurd is the prediction that the German economic
upturn could end because economic growth in the U.S. might slow from 3.5 to 2.5
Even if this caused German
exports to the U.S. to decline by five percent, which is highly unlikely, mathematically,
this wouldn’t even amount to 0.1 percent of German economic output. We couldn’t
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