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US economic leadership remains paramount

By Chris Lewis - posted Monday, 11 October 2021

The US remains the world’s most important world economy, despite its own fiscal difficulties and the economic rise of China under the Chinese Communist Party.  

This is despite the US and the world accumulating more debt to sustain economic growth, a problem that will ultimately need to be addressed.

Of course, rising US debt has been offset by the longstanding role of the US dollar as the world’s primacy currency, although the share of US dollar reserves held by central banks fell to 59 per cent in the fourth quarter of 2020 after being 71 per cent in 1999 when the euro was launched.  


This has resulted in the US paying much less for its foreign borrowing, has allowed the US to finance its high consumption at low cost, has boosted global demand, and provides liquidity as the primary tool for global transactions as many other countries rely on holding dollar reserves which creates massive demand for US financial assets.

Today the US economy still remains important despite its gross domestic product (GDP) declining from 40 percent of world output in 1960 to 24 per cent by 2019 as China’s share grew from 4 per cent to 16.3 per cent with other developing countries also making considerable economic gains including South Korea, Brazil, Mexico, Indonesia, and India.  

Supported by an economic model, financial markets, and legal infrastructure that remain more attractive than most other nations, it is estimated that a percentage-point increase in US growth boosts growth in advanced economies by 0.8 of a percentage point with a slightly lower figure of 0.6 for emerging market and developing economies.  

With an increasingly transnational international economy resulting in the foreign share of US corporate equity increasing from 4 per cent in 1986 to 40 per cent by 2019, helping to offset higher trade deficits since the 1980s, US per capita GDP was around $US65,000 by the end of 2019 while per capita gross public debt was over $US69,000 before exploding to $US80,885 in 2020 as a result of extensive government assistance to address the covid-19 disaster.

Nevertheless, the US remains the most important economic leader despite a 2020 view that the World Bank and the International Monetary Fund remain dominated by the US and a few allied major powers “who work to generalize policies that run counter the interests of the world’s populations”.

The US’s promotion of free trade is a prime reason why China has drastically improved its economic performance since the latter’s entry into the World Trade Organization (WTO) in 2001, thus benefiting many other countries that established trade links with China, while US trade deficits has long been crucial to international economic growth through its high level of household expenditure which creates demand for various goods from around the world.  


Whereas the US had a household consumption rate of 68 per cent of GDP in 2019 before the covid-19 impact, China had a rate of just 39 per cent.

But the rise of authoritarian China is a major challenge for the US (and humanity).  

While China’s bid to internationalise its currency is complicated by its reluctance to make its markets truly open, with the yuan during 2020 still accounting for just 2% of global foreign exchange reserve assets, although Morgan Stanley predicts it could be 5-10 per cent by 2030, China now has the largest foreign exchange reserves (including gold reserves) in the world at over $US3.3 trillion by 2020 which it uses to fund investment offshore in competition with American and other rival firms.

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About the Author

Chris Lewis, who completed a First Class Honours degree and PhD (Commonwealth scholarship) at Monash University, has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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