Is the USA the largest economy for the happy few?
The world has 3 economic giants at this moment. Based on its 2018 GDP, the U.S. is the undisputed leader of the pack with 21.4 trillion USD. The European Union (EU27 without the U.K.) came in second with 18.3 trillion USD GDP, followed by China with 14.4 trillion USD in GDP. With the current pandemic and recession, these giants came closer to each other but that might be a temporary realignment, so let us focus on the known and confirmed data.
Looking at these numbers without context, we might get the impression that the U.S. is the absolute powerhouse, and its population lives in the wealth it generates. It is true that the U.S. is still the largest economy by GDP but there are some interesting details that puts this in the right perspective. Its many Multi-National Corporations channel as much of their revenue as they can to tax havens like the Cayman Island, Ireland, and Luxembourg, which is estimated at one third of the entire economy and GDP. This means they are in reality contributing to these countries and not the economy of the U.S. itself.
The U.S. is also an economy that is based on consumption which it cannot fulfill itself. As result of this, the U.S. imported 3.1 trillion USD, 14.5% of its annual GDP! In the same period, it exported only 2.5 trillion USD of which almost 1 trillion USD were services. This on top of the services which are booked elsewhere ‘for tax purposes’! In short, this means that the U.S. is contributing a whopping 14.5% of its economy directly to other economies, in addition to contributing 1/3 of its Multi-National economy to tax havens.
But there is more to understand before we can grasp what these numbers really mean. We need to look at the spread of GDP and where the money ends up, and for the U.S., that is not a pretty picture. At this moment, 10.5% of the population of the U.S. are living in poverty. And due to the pandemic and economic turmoil, and additional 22.1% of the population is at risk of living in poverty within the next 12 months! At the same time, the famous 1% almost doubled their income and wealth over the past 2 years. So, yes, the U.S. is the largest economy but also the economy of the ‘happy few’.
How does that compare to both other economic giants? The European Union (EU27!) saw 5.6% of its population living in poverty with a declining trend prior to the pandemic. At this moment 15% is at risk of living in poverty and everything will depend on the way the bloc is able to deal with the pandemic and economic impact. With a surplus of 224 billion USD on its trading balance and a healthy spread over the major trading partners, the largest single market continues to claim its role as economic superpower and drive down the poverty-stricken share of its population.
China has an even better spread of its economy. After long years of economic development programs in combination with unprecedented investments, China was able to reduce its share of population living in poverty to 1.7% with an additional 0.5% at risk of poverty. Despite the trade war triggered by the U.S. of Donald Trump, China still exports 450 billion USD to the U.S. and has a trading surplus of 345 billion USD. It also supplies its trading partner E.U. with 360 billion USD with a trading surplus of 160 billion USD.
Looking at GDP from the perspective of what it means for the population of these blocs, it is crystal clear that living in the U.S. as the biggest economy does not mean that you benefit from its economic power and wealth. The changes that you are either living in poverty or at risk of living in poverty are significantly higher, despite living in the wealthiest economy of the world!
There is another significant difference between these powerhouses which becomes clear when we look at the ongoing developments of trade and agreements. Donald Trump tried to force China to trade on his terms and made some halfhearted attempts to dictate the same with the European Union. Even its neighboring trading partners Mexico and Canada got a piece of the Trump-Cake. The result of this is not that products and parts from these trading partners were not replaced by “American products”. They just got more expensive, at the expense of the consumers in the U.S. In fact, it actually increased the costs of living especially for the lowest earners. Indeed, those who are either already living in poverty or at risk of it.
