America loves to see itself as a global economic leader, but below-average economic growth the last quarter has many worried for our position. Folks fearful of America losing its leadership status are likely to espouse policies and strategies to hold the position, but they need to remember free trade and openness helped get us where we are. Economic growth begets growth, regardless of the source.
In light of today's amorous celebration, we'd like to examine America's love affair with being the global economic leader. Like many great love affairs, the initial circumstances were right: The US had the resources, innovation and leadership to claim independence, industrialize, power through World Wars—making other suitors (Britain) look like chump change in comparison.
Although we had our moments of indiscretion (protectionist policies, closed borders), for the most part we had a monogamous relationship with free trade and a willingness to accept a diverse population within our borders. We realized our openness created wealth for ourselves and for the global economy. We flirted with the idea of being an economic leader and the flirtation turned into a full-blown romance with the global economy falling for our promises of economic and political stability.
But like all great love affairs, the romance has hit a rough patch. Q4's slower US GDP growth, Financials woes, sovereign wealth funds swooping up US assets, decoupling theories, the weakening dollar, etc., all in the face of positive global developments have caused anxiety and fears the US is losing its global economic leadership status. Today's headlines aren't promising either:
Japan Economy Grows 3.7%, Twice as Fast as Expected
By Jason Clenfield, Bloomberg
Slovakia's GDP Growth in Q4 2007 Estimated to be 14.1%
By the Statistical Office of the Slovak Republic, SKToday.com
Indonesia 2007 GDP Expected to Grow at Fastest pace in 11 Years
By Aloysius Bhui, Forbes
Bernanke Says Economic Outlook is Worse
By Jeannine Aversa, International Business Times
Who do these upstarts think they are? Well, for one, part of the global economy. America doesn't need to fear growth abroad will threaten our own economic health. Yes, America is the world's largest economy at ~27% of global GDP (estimated by IMF for 2006), but it's not the majority. It's much easier for the other 73% to grow and pull the US with it, than the US alone pulling the rest of the world.
But what about the effects on the US domestic economy if leadership shifts? Will Americans experience less growth, more unemployment, decreased happiness? With the public fearing a slowing economy and elections impending, political rhetoric will likely turn to criticisms of foreign competition or offshore outsourcing. But folks need to remember: The global economy is not a zero-sum game, rather it's capable of ever-expanding with growth begetting growth—and most importantly, it doesn't matter where the growth comes from. The following article wonderfully demonstrates how foreign growth helps the US.
A Pewter Lining
Daniel Fisher, Forbes
Despite cheaper goods and services available abroad, the growing economic bourses of developing nations allow them to afford relatively pricier US technology and products, creating profits and labor demand domestically. Remember Ross Perot predicting a "giant sucking sound" should NAFTA be implemented? Folks thought we'd lose millions of jobs and face exploding unemployment. Instead, companies were able to lower costs, pass on the values to consumers and pursue new technologies—and our current unemployment rate is near historical lows.
Perhaps the honeymoon period is coming to an end, but the fire is not out. Nowhere in the world are property and individual rights as stable and zealously protected as they are here—a vital key to healthy, stable economies. Our education system and standards of living continually attract a positive flow of the world's most productive, innovative people. As the US continues to engage the global economy, wealth creation will continue and benefit all nations. In Kishore Mahbubani's book, "The New Asian Hemisphere: The Irresistible Shift of Global Power to the East," the former Singaporean diplomat writes of the growing Asian nations, "Their ideal is to achieve what America and Europe achieved. They want to replicate, not dominate the West." And isn't imitation the most sincere form of flattery?