How The Us Economy Impact Global Business

The 2007 global economic crisis that emanated largely from the asset bubble and sub-prime debt markets of United States actually confirmed the global dependence on the US economy. China may have become the second largest economy and BRICS may have indicated a bright future, but none is likely to replace the US economy in importance anytime soon.
How the US Economy Impact Global Business
Source - Wikimedia Commons (https://commons.wikimedia.org/wiki/File%3AWorld_share_of_nominal_GDP_IMF_WEO_2015.png)

The United States Economy

As the single largest economy in the world accounting for about one-fifth of the global GDP, United States is by far the most important player in international business. In fact, its role in international trade is even more important than its proportional size, because of its highly globalised composition, as well as because of the sustained U.S. consumerism, that has helped keep global demand high, even while the U.S. economy suffered from an annual trade deficit that was approaching a trillion dollars.

The Global Economic Dependence on the US Economy

The global economic well being during the last few

years has been sustained on a strong demand for goods and services in international market. There were two major factors that sustained it - resurging economies of China and to some extent India, and the consumerism spree of the US citizen that was partially the result of a surging domestic asset bubble. Even the economic growth of China and India was contributed in part by this very consumerism. It was the demand in United States, more than any other place that helped China establish itself as the factory of the world. It was also the same demand that helped Indian outsourcing and software industry to take strong roots.

The 2007 Global Economic Crisis

The persistent US trade deficit has been growing at alarming rates since the beginning of this century, and had reached enormous proportions by 2007, just before it precipitated into the full blown global crisis, making it apparent that the situation was not sustainable. During the last few years prior to the crisis, the way the US deficit increased, the way price of crude kept spiralling, and the way China kept hoarding foreign exchange reserves had already made economists and experts to wonder and debate about those global imbalances. The disaster struck finally in the form of bursting of housing asset bubble, thanks to certain adventurous subprime mortgage transactions. But even if this lack of prudence on the part of certain financial players had not been there, it is very likely that


something else would have given way, and precipitated a crisis, sooner or later.

The 2007 global financial crisis is a classical example of the dependence of global economy on the US economic health. Ever since the subprime crisis, which had been in the waiting for some time before it finally got precipitated, the world had experienced a consistent uncertainty in the economic indices, be it stocks, commodities or anything else. The massive and perhaps unprecedented fall of crude price during the crisis is just another example of what can happen when the US economic health suffers. Fall in demand of goods and services in the US economy is strong enough to create a significant mismatch between demand and supply in international markets, and usually sufficient to cause a crash in prices. When prices fall dramatically, the uncertainties can prevent additional capacity building, and overall damage the business confidence, something that we have been a witness to during the last year or so.

The Future

The world has witnessed a lot of turmoil during the last decade. Oil prices spiralled up and then down, retaining their instability. China is still a couple of decades or more away from being an economic superpower and is facing a significant slowing down of its economy. Several other developed countries are experiencing wealth erosion that is worse than that that seen in the United States.

All these point to a reaffirmation of the central position of US economy in international business. Unless countries like China and India are able to decouple their economies from the impact of global economic events - a highly unlikely proposition, the global economic booms and recessions will continue to depend upon how US businesses manage their own bottom-line and finances.

All the more reason why they should gather their wits at the earliest, and start growing fast enough!



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