Commentary: The global economy without America

LONDON: It is still early days in the second Trump administration, but one must already ask what it means to “Make America Great Again.”

After all, the country is already great, judging by all the most basic economic metrics. It accounts for between 15 per cent and 26 per cent of global gross domestic product (depending on whether one uses the nominal figure or adjusts for purchasing power), and its economy is bigger than the rest of the G7 combined. Despite having a population one-quarter the size of China or India, the United States dwarfs both economies (in nominal terms). The average American household’s income is far above that of any other country with more than 50 million people.

That said, the US has a dreadfully low domestic savings rate and exhibits extreme inequalities of income and wealth compared to its peers. Despite spending colossal sums on healthcare, it ranks below all other advanced economies in health outcomes, with some population cohorts even suffering declining life expectancy.

Most economists would say that if America is to be made greater, it needs to improve its fiscal position, unlock higher social returns from its huge expenditures on health and achieve more inclusive growth, with broadly rising incomes, especially for those at the bottom of the distribution.

COLOSSAL DEMAND OF AMERICAN CONSUMERS

Given its size and systemic importance, developments in the US economy tend to have implications for the rest of the world, too.

Over the past few decades, everyone else in the global economy has taken for granted three key features of the US system: Its huge defence spending (which reinforced its alliances and gave it power over adversaries); its central position in the postwar rules-based global system of governance; and, somewhat less discussed, its colossal consumer demand.

At the end of 2024, personal consumption expenditures accounted for 68 per cent of US GDP. That is a very high level for any economy at any point in time, and in the US case, it has persisted for many years. The US share of global consumption of goods is significantly greater even than the US economy’s already large share of global GDP.

And because there is a strong relationship between US consumption and US imports, the rest of the world - friends and foes, and providers of essentials (like energy) and luxury goods alike = has come to rely on this aspect of the US economy.

By constantly threatening higher tariffs against America’s largest trading partners, President Donald Trump and his advisers seem unfazed by the fact that reducing overall imports into the US will almost certainly harm the US consumer, either through higher prices or by forcing the US to increase its savings rate as the rest of the world turns its attention elsewhere.

GLOBAL TRADE THAT EXCLUDES THE US?

Could this happen? Although the US accounts for 15 per cent to 26 per cent of global GDP, the rest of the world economy is still three to five-and-a-half times larger.

So, it is easy to imagine a scenario in which other countries decide that they no longer want to rely so much on the US consumer. Why not diversify?

Consider the BRICS, which has been expanding its original composition (Brazil, Russia, India, China, and South Africa) to incorporate new members and “partner countries”. What if these countries suddenly decided to do more than hold symbolic annual summits?

Instead of dictating the terms for projects in countries participating in its Belt and Road Initiative, China could start offering them low- or zero-tariff trade and investment. Together with India - whose population is four times larger than America’s - it could create the conditions for an explosion in global trade that excludes the US.

Similarly, one can imagine a new, more outward-looking German government finally realising that its self-imposed “debt brake” has been holding it back. Like the relatively new Labour government in the United Kingdom, it could adopt a policy of not only permitting but encouraging more borrowing for domestic infrastructure and defence spending.

And why not revisit those perennial French proposals to develop a European bond market, or finally get serious about extending the European single market to all goods and services?

If MAGA ultimately helps everyone break their dependency on the US consumer, the rest of the world will have much to thank Trump for. The only losers will be ordinary Americans.

Jim O’Neill is a former chairman of Goldman Sachs Asset Management and a former UK Treasury minister. This commentary first appeared on Project Syndicate.