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TOM KEANE

World economy no longer hangs on the US

By Tom Keane Globe Columnist,April 12, 2014, 9:11 p.m.
A pro-Russian protester shouts slogans in front of Ukrainian riot police in central Donetsk last month. International issues color the International Monetary Fund’s world outlook.
A pro-Russian protester shouts slogans in front of Ukrainian riot police in central Donetsk last month. International issues color the International Monetary Fund’s world outlook.REUTERS

When the United States sneezes, the world catches a cold. And when America recovers, the planet has a spring in its step. Or so it used to be.

For decades, that metaphor had seemed an accurate description of the global economy. The old USSR may have once shared superpower status with the United States, but that was a function of nuclear weapons, a well-armed military, and a bombastic attitude. When it came to economic matters, however, there had been — at least since World War II’s end — only one true superpower. If that superpower was doing well, its success lifted the rest of the world. If it hit a recession, the world would suffer. That shouldn’t surprise. The United States had by far the biggest slice of the global pie. If Americans weren’t buying, then no one else was selling.

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In 2008, the United States did more than sneeze. As the Great Recession unfolded and financial markets threatened collapse, it appeared to some that a near-fatal illness had struck the country. And sure enough, the rest of the world had it tough, too. Global economic growth fell. Some countries — notably China — continued to perform well, but most everyone else was hit hard.

Now, however, it appears that America is getting back on its feet, its economy about to surge. Granted, we’ve heard this story before. The recession officially ended in June 2009, according the National Bureau of Economic Research. But growth since then has been anemic, with stubbornly high unemployment, tepid job creation, and largely flat incomes. But — really! — 2014 promises to be different. The March jobs report, for example, showed 192,000 new positions created. The US economy seems to be emerging from its winter doldrums, shaking off government shutdowns, sequestration, and tax hikes. Economists from all over the spectrum increasingly agree that this year should be a good year.

So now that the United States appears poised to bounce back, does the world bounce back as well?

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The International Monetary Fund says yes — it expects the US revival to translate to global revival. The fund’s World Economic Outlook, just released this month, figures worldwide economic activity will grow in 2014 by 3.6 percent (up from 2013’s 3.0 percent) and in 2015 by 3.9 percent. “Much of the impetus” for that, the IMF says, is “coming from advanced economies” — namely, the United States.

So the metaphor still holds. We matter. We really do matter. But perhaps not as much as we once did.

The US economy is big, but relatively speaking, not as big as it once was. Thirty years ago, America accounted for one-quarter of world output. Today it’s down to one-fifth. That’s a meaningful change. Back then we were rich, and everyone else was much less so. Now those countries — especially China — have gotten better off. (In fact, China, with a 15 percent share of global output, is now the second biggest economy in the world.)

Some might see this as a sign of failure, of other nations getting the best of America, of the United States in decline. In truth, it’s a tale of success, a story of nations and people coming out of poverty, being able to live better, longer, and more productive lives. And much of that can be credited to US efforts to encourage free trade and local economic development through institutions such as the World Bank, the IMF, and the World Trade Organization.

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Still, that success has downsides. As other nations get richer and the world gets more interconnected, the United States no longer goes it alone. Indeed, that’s already happening — and sometimes in a negative way. The IMF’s otherwise sunny outlook, for instance, worries about a host of issues that could upend growth, including Russia’s incursion into Ukraine, global climate change, North Korean war-mongering, and political troubles in Turkey and the Middle East. For the United States, once seemingly in control of its own and the world’s destiny, that’s a novel proposition. The future is no longer solely in our hands.

Tom Keane can be reached at tomkeane@tomkeane.com