Will US Consumers Remain the Driver of the Global Economy?
In recent years, the United States has contributed much more to global economic growth than any other country or bloc. Meanwhile, much of this growth was generated by US consumer spending, which generated growth for both US-based businesses and well as exporters to the United States. However, consumer confidence levels in the United States have plunged since President Donald Trump took office earlier this year. This is likely to lead to a downturn in US consumer spending at a time when there is no obvious alternative to pick up the slack for US consumers.
What is Happening
- With domestic markets in other major economies such as China and Europe struggling with economic instability (China) and stagnation (Europe) in recent years, it has been US consumers that have been the leading driver of global economic growth during this period. This has allowed the US economy to grow much faster than any other large developed economy, and has prevented the economies of China and Europe from suffering larger downturns thanks to the growth in their exports to the United States.
- The United States is home to a vast market of 350 million consumers that have some of the highest wages and levels of disposable income of any country in the world. Moreover, not only do US consumers possess ultra-high levels of purchasing power, but they also save very little, making the United States an extremely attractive market. These high wages and low saving rates are the main reason why the United States will most likely never have a trade surplus, but that is another story altogether.
- Since taking office earlier this year, the Trump Administration has enacted a series of economic and trade policies that have caused mass uncertainty and confusion across the United States and the world. This uncertainty has wreaked havoc upon consumer confidence in the US, causing it to plunge dramatically in recent months. As a result, it is likely that consumer spending in the US will slow significantly in the coming months.
Implications
This potential collapse in consumer spending in the United States could not have come at a worse time for the global economy, as its other leading players are all struggling with economic problems of their own. In China, recent growth has come from exports and massive government stimulus measures as its domestic market has been relatively weak. Meanwhile, Europe has been suffering from prolonged economic stagnation, with exports to the US contributing to much of the region’s growth in recent years.
This fall in consumer confidence has already cost President Trump some of his support, although his hardcore supporters continue to back him. However, as he was elected in large part on expectations that he could reduce inflation and secure more economic growth, any long-term decline in consumer confidence will severely dent his approval rating and could lead to some members of the Republican Party distancing themselves from the Trump Administration’s chaotic economic policies.
The massive US consumer market remains the United States’ most powerful weapon in any trade dispute that the Trump Administration finds itself engaged in. As such, a weakening of the consumer market in the United States will reduce the leverage that the Trump Administration will have in any negotiations with the US’ trade partners, potentially leading to trade deals that are not as favorable to the United States as President Trump had hoped for when he launched his trade war.
Summary
The consumer market in the United States remains the most important component of the global economy and has long been a key driver of growth for many of the world’s leading economies, industries and businesses. A period of prolonged weakness for the US consumer market would therefore have devastating consequences for the US economy and much of the rest of the world. As a result, it is imperative that the Trump Administration reduce the level of uncertainty over the direction of economic and trade policy in the United States before it is too late to avoid a prolonged downturn in the US’ consumer market.