The US economy is undoubtedly one of the largest economies in the world. Even with the US economy facing some challenges, US finances still remain an important influence on the global economy. In fact, the US financial system is often seen as the engine of global economic growth. As such, US financial developments have an impact on global economic activity, influencing economic activity around the world. In this article, we will explore the impact of US finances on the global economy.
The US economy is currently ranked as the world’s largest economy by GDP. US GDP for 2018 was estimated at nearly twenty-one trillion US Dollars. This makes up around 25% of the global GDP. The US is also known for its strong financial sector and its innovations in financial technology, areas which have become symbols of the American economy.
Impact of US Finance on the Global Economy
The US has a major impact on the global economy, both directly and indirectly. Below are some of the most notable ways US finances can have an impact on the global economy.
- US Export Activity
The US is one of the largest exporters in the world. US exports total around $1.7 trillion in goods and services. This includes $2.3 trillion in high tech products. US exports make up around 11% of the global export market. US exports, in turn, drive global economic activity. As US exports grow, it helps boost economic activity and creates jobs around the world.
- US Stock Market Performance
The US stock market performance can have a ripple effect throughout the global economy. When US stocks do well, they can trigger international investors to buy stocks in their local markets. This, in turn, helps to support economic activity in those markets. On the other hand, when US stocks do poorly, it can lead to a selloff of assets in other global markets and contribute to slower economic growth.
- US Monetary and Fiscal Policy
The US Federal Reserve, the central bank of the US, and US fiscal policy have a tremendous impact on the global economy. The Fed sets monetary policy – influencing financial conditions and driving global capital flows. Changes in Fed policy can lead to changes in global interest rates, productivity, and exchange rates.
Fiscal policy, however, is more direct. The US government can implement policies like tariffs and tax cuts which have the potential to have a ripple effect on the global economy. For instance, the US’ recent tax reform has caused other countries to evaluate their tax systems and make adjustments accordingly.
- US Financial Firms
The US economy is home to some of the safest and most influential financial firms in the world. US financial firms like Goldman Sachs, JP Morgan Chase, and Citigroup are some of the largest financial firms in the world in terms of market capitalization. US financial firms have an important role to play in global capital allocation and financial activities. As US financial firms grow and expand their reach, they can have a positive or negative impact on the global economy.
- US Treasury Bonds
Treasury bonds are one of the most important investments for foreign investors. US Treasury bonds are seen as one of the most reliable investments, due to the US’ stable economic and political systems. Foreign investors often buy Treasury bonds, which provides the US with capital and supports economic activities around the world.
The US economy is undeniably a major influence on the global economy. US finances have a direct and indirect impact on economic activity in other parts of the world. With US exports, stock market performance, fiscal and monetary policy, US financial firms and US Treasury bonds, there is no doubt that US finances have an important role to play in the global economy.
