The reality is that as we approach the third decade of the 21st century, the country best positioned to lead the world is the same one that led the world through the second half of the 20th century: The United States of America.
Better Policies Make Better Countries
This is based on two simple facts: compared to the major powers of the world—China, the European Union (EU), the UK, Japan, and Russia—the United States is damaging itself least with its worst policies and helping itself the most with its good ones.
We looked at China last time, so let’s look at the EU, the UK, Japan, and Russia before examining the advantages the Trump administration is creating for the United States.
EU Faces Big Problems
The worst policy of the EU is treating the UK poorly enough that it wants to leave. Brexit, when it eventually happens, will cut more than 12 percent of output from the EU. Losing the world’s fifth-largest economy is a blow that will be difficult for the EU to rebound from soon.
A close second is their policy of allowing mass immigration of people from the Middle East and North Africa. These migrants, by and large, neither value European culture nor wish to become a part of it, preferring to live off the social services. This dramatic shift in the population and culture of the EU is not only engendering a clash of civilizations from Scandinavia to Sardinia, but hurting the European economies in the process, as they shoulder the social burden of millions of refugees.
The third is the virtually unfettered expansion of the state powers of the European Union. Every year it controls a greater portion of the economy and the lives of its peoples, stifling growth, innovation, and freedom of speech.
The evidence is clear. Germany, the largest economy of the EU, regularly hovers near recession, causing the European Central Bank to delay planned interest rate hikes. France is rocked by the yellow vest rebellion and unemployment, while Italy teeters on bankruptcy and Spain and Greece have 20 percent unemployment rates, 50 percent for the young.
Perhaps the best policy the EU is pursuing is its discussions of expanding trade with the United States. This isn’t jingoism; it’s common sense. China’s market for German cars and machinery is slowing. And, like the United States, European companies dislike having their IP and technology stolen by China.
The UK is Doing Well!
Despite the dark cloud of indecision over Brexit (or is it because of it?), the UK is enjoying its strongest quarter of growth since 1988. What’s more, its economy has grown every year for the past nine, employment is at record levels, wages are rising the fastest in a decade and debt is falling. Investment in infrastructure and skills are also at record levels.
Japanese Economy Awakens
After 25 years of zero economic growth, Japan is seeing some positive signs. But even though it’s enjoying record low unemployment and rising wages, Japan’s dependence on resources, reliance on exports, its aging workforce, and shrinking market make it unlikely to be the force that it was in the 1980s.
Russia’s Rough Future
And Russia, though it’s a would-be global military power, the economy is a nonstarter, ranking lower than that of Canada, Italy, and Brazil. Russia simply lacks the economic strength, demographics, and infrastructure to compete in the world or create great wealth. Natural gas and oil are 60 percent of its exports and 30 percent of GDP, making it extremely dependent on energy prices.
But even that may not last much longer in the face of emerging competition from Israel and its vast, newly discovered reserves it will soon sell to Europe. Russia could, however, seek to return to its former glory it knew as leader of the old Soviet Union by force. That may well be a destabilizing factor in Europe, the Middle East, and elsewhere.
In stark contrast, however, the United States is poised to see significant if not record economic growth in the next few years.
Looking forward from a macroeconomic perspective, there are some very compelling reasons why we may see a new bull market and a continuation of our current robust economic conditions. At the very least, the U.S. economy and equity may avoid the adjustment that ordinarily would come at this point in an already extended bull market cycle.
Compelling Reasons for US Resurgence
The retaliatory trade war with China may actually be positive for equities. Manufacturing is moving to cheaper locales in Asia (Vietnam, etc.) increasing margins of manufacturers, as well as back onshore to the United States. Onshoring and domestic plant expansion puts money into the U.S. economy that otherwise goes into China.
Domestically, an up-to-2-trillion-dollar infrastructure bill is likely to be passed next year that will provide broad and deep domestic stimulus to the economy, including jobs, and huge business contracts to American companies. Half of the budget will likely be funded by selling federal farm loans to banks, making the program at least 50 percent revenue neutral.
And, restructuring the U.S. health care pricing model is likely to be introduced in 2020 that would drastically lower costs, including prescriptions and procedures. This would free up a considerable amount of consumer capital. How much of an impact that will make remains to be seen. But since it’s one-seventh of the economy, it should be a significant positive factor in the consumer economy.
In the financial realm, low interest rates are pretty much baked into the 2019 economic outlook. President Donald Trump has already demonstrated his willingness to fight the Federal Reserve on rate policy.
Rising net foreign investment inflows into the United States are a rational expectation in response to a relatively negative economic climate in China and uncertainty trends in first- and second-tier EU nations with a Brexit still likely in the near term.
Is there only good new for the U.S. economy? Of course not. Federal debt is higher than ever. Federal spending, homelessness levels, and education costs are too high.
However, all things are relative in this world, especially perceptions of economic opportunity and conditions. China’s total debt is two or three times higher than that of the United States. The economic outlook in Europe isn’t nearly as rosy, either.
The United States, meanwhile, is building on its global economic and strategic leadership, reversing trends that have especially favored China during the past several decades and hamstrung American productivity.
So don’t be surprised if this century rhymes with the last.
James Gorrie is a writer based in Texas. He is the author of “The China Crisis.”
