As you may or may not be aware the U. S. economy has recovered faster than the Eurozone’s, China’s, Japan’s, Canada’s, or just about anyone else’s after COVID. This graph, sampled from the Federal Reserve, illustrates the difference:
See the Fed post for more examples.
A number of explanations have been proffered for that including things we’ve done right and things we haven’t done wrong, e.g. Bidenomics, reductions in power-intensive manufacturing, etc., depending on the writer’s point-of-view.
I’d like to suggest one additional alternative: foreign direct investment. Consider this chart, sampled from IMF Blog:
The original is a fun GIF which you can view by clicking on over to the link.
That in turn raises all sorts of follow up questions. Why are we receiving so much FDI? Who is it coming from? Much of it is from Japan, Canada, and the United Kingdom. I suspect that some of it is our ongoing historic bull market. Another explanation is that investment opportunities are better here than at home.
One test of that might be to check how the Netherlands’s economic is doing. Maybe I’ll try tracking that down if I have the energy.
So first a question. Is the GDP measurements adjusted for currency effects / purchasing parity — because the US dollar has been going up against every other currency for the last 2 – 3 years; largely due to the Fed pushing interest rates (even if other countries raise their interest rates, net-net it doesn’t balance out because the Fed was adjusting the risk free rate on the still global reserve asset, so other countries currencies fall compared to the dollar).
The paper has the other plausible reasons; for energy poor counties (that’s the EU / Japan / UK), the Ukraine war and subsequent replacement of cheap energy directly from Russia with expensive energy indirectly from Russia or other countries was an economic shock. Other countries (UK, Canada, parts of the EU) have been forced into fiscal consolidation in the past couple of years to keep their currencies and interest rates stable. And due to 30 year fixed rate mortgages, monetary policy tightening effects households in the US with an attenuated delayed lag compared to other countries.
Finally, the big exporter manufacturers (Germany, Japan) have been hit with a China shock as China has emerged as a huge producer of advanced manufacturing goods (like cars) and taken away huge chunks of the Chinese domestic market and foreign markets from said countries.
Note, the US won’t be immune from some of these issues for much longer. Fiscal consolidation looks inevitable because Yellen’s tactic for delaying it (issuing lots of short term treasuries) has basically run out of road. Also, China is likely to shock some of the industries the US leads in (think semiconductors, pharma, aerospace) in the next 5 years.
Brad Setser’s X account has some nice charts of the China shock today.
China’s net trade surplus has doubled (!) in 5 years, approximately from Jan 2020 to today; to $1 trillion / year from $500 billion / year.
This at a time when the US China bilateral deficit has been relatively stable, maybe decreased a little bit. Accounting identities would say that means the world ex-US has bore that deficit ($500 billion / year). That prob accounts for a substantial portion of the growth gap right there.