Globalist Analysis

Taking Stock of What’s Right With the USA

In a time of crisis, what elements of the U.S. economy remain strong?


  • Contrary to popular media reports, the United States is still in the business of making "stuff."
  • At this juncture, the dollar remains king. There is no alternative to the buck.
  • When goods and services are combined, America emerges as the world's top exporter.
  • Writing America's obituary has become fashionable again in the popular media.
  • The trade deficit masks the fact that the United States is a significant exporter of both goods and services.

The U.S. financial crisis has shaken confidence in the U.S. economy, and for good reason. After nearly a decade of excessive borrowing and lax financial regulation, the economy is in the grips of a painful deleveraging process.

Bank failures, home foreclosures, credit card delinquencies — these variables and others have brought the U.S. economy to a virtual standstill.

These same factors have spawned a growing sense of despair and angst about America's economic future.

With the near-term health of the U.S. economy tied to a government bailout package, it's hard not to be concerned about the nation's long-term prognosis. Right on cue, writing America's obituary has become fashionable again in the popular media.

Against this dire backdrop, we thought it would be a good time to step back from the drama of Wall Street and Washington and unemotionally reassess the prospects of the U.S. economy. Below is an inventory of what's right with the United States.

This isn't just feel-good fluff — the list is designed to help people think rationally about the economy's future.

With just 4.5% of the global population, the United States accounts for 25% of global gross domestic product (GDP) and produces more output in a year (around $14 trillion) than the next four largest economies — Japan, China, Germany and the United Kingdom — combined.

America's economy is more than four times the size of China's.

Contrary to popular media reports, the United States is still in the business of making "stuff." Indeed, the United States is a manufacturing powerhouse — ranked number one in output.

America's share of global manufacturing output was 20.5% in 2006 (the latest year of available data), and little changed from 1990 (22%) and from 1980.

China ranked a distant second (13%). U.S. manufacturing output exceeded that of Japan and Germany combined in 2006.

The United States has posted a trade deficit in goods every year since 1975, a notorious economic feat.

However, the deficit masks the fact that the United States is a significant exporter of both goods and services.

When goods and services are combined, America emerges as the world's top exporter, with combined exports totaling $1.6 trillion in 2007, or 9.4% of total global trade.

Lost amid all the chatter about U.S. outsourcing and jobs being shipped to China is this simple truth: The United States remains the most attractive market in the world for foreign investors.

Why? The allure of the United States comes from many factors, including its vast and wealthy market, large skilled labor pool and transparent rule of law.

Foreign Direct Investment (FDI) inflows to the United States totaled $1.3 trillion between 2000 and 2007. The comparable figure for China was $483 billion, or roughly one-third of America's total.

America's share of global inward FDI was nearly 16% between 2000 and 2007, versus a 5.8% share for China. Meanwhile, U.S. FDI inflows were three times as large as China's during the 1990s.

More than half (52%) of the world's top 100 brands were American in 2008, according to the research firm Interbrand.

Of the top ten global brands, eight were American, giving corporate America an unequaled global footprint relative to its international competitors.

The United States remains the most innovative economy in the world. America's risk-taking, entrepreneurial streak underpins its technological leadership — a leadership that continues to attract the best and brightest from around the world to live and work in the United States.

Reflecting this dynamic, America is the largest market in the world for information technology spending on hardware, software and services.

Though America's public school system leaves a lot to be desired, when it comes to higher education, the best universities in the world are in the United States.

Nearly 40% of the universities in the QS World Rankings' Top 100 universities are found in the United States, with American universities holding the top two positions last year.

In the 2006-2007 academic year, American universities hosted nearly 600,000 international students, one-fifth of all international students, making the United States the top destination for foreign scholars — followed by the United Kingdom, France, Germany, Australia and China.

The U.S. dollar remains the reserve currency of choice for many nations — it accounted for roughly 65% of global central bank reserves last year.

The euro ranked a distant second, with a 25% share. Granted, the U.S. financial crisis has served to undermine foreign investor faith in the U.S. dollar, but at this juncture, the dollar remains king. There is no alternative to the buck — Europe has a single currency, but it lacks a singular capital market.

China's currency is not even convertible. Japan has no interest in promoting the yen as a world currency — a great deal of Japan's trade is still conducted in dollars.

Military might still matters, especially in a world where geo-strategic flashpoints continue to simmer (think Pakistan, the Middle East and parts of Africa).

Keeping the global peace still falls to the United States, whose worldwide military presence is second to none. U.S. military expenditures have increased sharply during the past few years, thanks to the two-front war in Iraq and Afghanistan.

It is worth noting that U.S. spending on advanced military applications has, in recent decades, incubated key technological breakthroughs, some of which have gone on to become commercially feasible.

Consider the Internet, a system initially developed by the U.S. military that has helped change the way the world transmits information.

Based on the latest competitiveness survey from the World Economic Forum, the United States ranks as the world's most competitive economy — a position underpinned by America's innovative capabilities and top research universities, among other variables.

Whether the United States maintains its top ranking next year remains to be seen — the financial crisis, no doubt, will take some gloss off the U.S. economy.

That said, the key point is that on a relative basis, the U.S. economy remains among the most competitive in the world, a fact often forgotten or overlooked here at home.

We won't deny that there are a few things broken in the United States right now, with the impaired U.S. financial sector chief among them.

True, all is not perfect — America's crumbling physical infrastructure, unwieldy healthcare system and debtor nation status require immediate attention.

In addition, the world is not standing still. Many nations — think China — are rapidly becoming more adept with technology, creating their own global brands and expanding their manufacturing capabilities. They are spending more on education and weapons and will no doubt create a much more competitive landscape in the years ahead.

That said, the view that "all is not lost" is an understatement, as the United States remains the most competitive and resilient economy on the planet.

Our hunch is that the U.S. economy will prove to be far more resilient and dynamic than what the doomsayers would have you believe.

Yes, these are difficult days for the U.S. economy, but we are bullish on the future. The foundational building blocks of the economy remain quite strong — in the end, we believe this underlying strength will help lift the economy out of its current funk.

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About Joseph Quinlan

Joseph Quinlan is the managing director and chief market strategist at U.S. Trust, Bank of America Private Wealth Management.

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