Divisiveness and the Economic Challenges of 2021 – Challenge #5: U.S. Economic Leadership

Now let’s look at Challenge #5 of the Divisiveness and the Economic Challenges of 2021 – U.S. Economic Leadership.

Does it matter how the U.S. is perceived by other countries if it wants to be an economic leader? Well, it does. If the United States wants to be the global economic leader and be a key political leader (the two are interrelated), it is important for the U.S. to be viewed favorably by other countries. International divisiveness and isolationism don’t work too well – not only does it increase political and military risk, it also reduces economic opportunities for U.S. companies, reduces opportunities to seek joint solutions to global problems, and decreases returns for global as investors as economic growth is stymied.

One of the challenges of 2021 will be for the U.S. to develop its position in global economic and political leadership. Once again, eliminating international divisions, not differences, could enhance the global economic and political leadership of the United States.

The Pew Research Center conducted surveys in June through August 2020 across 14 advanced economies on opinions regarding China and the United States. The countries surveyed include: 1)  Australia, 2) Belgium, 3) Canada, 4)  Denmark, 5) France, 6) Germany, 7) Japan, 8) Italy, 9) the Netherlands, 10) South Korea, 11) Spain, 12 Sweden, 13) the United Kingdom and 14) the United States. In most of the 14 advanced economies unfavorable views of both the U.S. and China are at or near historic highs according to the Pew Research Center, which has polled on the issue for the past decade. Although the U.S. was viewed more favorably than China in almost every country (it was a tie in Belgium), less than 50% of respondents had a favorable view of the United States in almost every country. Only the U.S. and South Korea had a majority of respondents having a favorable view of the United States.

The view of America as the economic leader in the world has certainly waned. According to the Pew Research Center, China was viewed as the dominant economic power by respondents in 11 out of the 14 countries surveyed. Only respondents in the U.S., Japan, and South Korea viewed the U.S. as the dominant economic power.

The view that American economic leadership has declined may be reflected by the declining foreign sales of U.S. firms. According to a Goldman Sachs report, foreign sales as a share of S&P 500 companies’ total revenues fell in 2019 to its lowest level in 10 years. Foreign sales accounted for 29% of the $12 trillion aggregate S&P 500 revenues in 2019, down from 30% in 2018. According to Goldman Sachs, the Greater China area has been a key driver of foreign sales for S&P 500 companies. Over the past 10 years, 40% of the increase in Asia-Pacific sales was derived from Greater China. The rise in sales to the Asia-Pacific region offset the decline in sales to Europe.

Closing the divisions that exist between the United States and other advanced economies may be crucial for the U.S. to be viewed as the global economic leader by other countries. A favorable view of the U.S. by foreign countries could help restore U.S. global economic leadership through increased financial opportunities for U.S. firms and investors.

For further information:

1. From S&P Global Market Intelligence, a discussion on the Goldman Sachs report: S&P Global Market Intelligence – Goldman Sachs
2. From Pew Research: Pew Research – Foreign Views on America and China

CBEI Series: Divisiveness and the Economic Challenges of 2021
Challenge #1: COVID-19 and the 2021 Economy
Challenge #2: Controlling U.S. Debt and Federal Budget Deficits
Challenge #3: Manufacturing and Trade
Challenge #4: Healthcare
Challenge #5: U.S. Economic Leadership
Challenge #6: Wages