The United States became the hub of global innovation, finance, and military force in the 20th century, especially post-World War II. US dollar became the global reserve currency, giving it unparalleled financial power. The US economy prospered due to its capitalist model, which promoted innovation and productivity. US used this clout to gain access to vital resources globally with its unparalleled military might.
Neoliberal Globalisation
The neoliberal globalization of the past four decades has dramatically increased not only capital mobility but also free movement of goods and services and manpower across the countries. This resulted in massive outflows of capital and technology from US to developing economies, especially in East Asia and China. As a consequence, the share of manufacturing in the US economy declined sharply, leading to job losses as industries relocated to countries offering lower wages and higher returns on investment. The liberal immigration policy of US added to the woes of unemployment of the US local population as the immigrant people could be hired at lower cost.
In this new development model, foreign investment and exports became key drivers of growth, prompting the governments to offer tax concessions and subsidies to attract multinational corporations. Countries like China, India and few others have capitalised by liberalising their economies in 1980s and 1990s as they have had cost advantage in terms of land, labour and other resources. US corporations have increasingly found it more profitable to invest in China and other East Asian economies.
Despite these shifts, US continues to be a leading nation in terms of the size of its economy and its dollar currency which still has the tag of global currency. The following data substantiates these points.
| Global Ranking | Country | Size of economy GDP (USD) |
| 1 | USA | $ 30.51 Trillion |
| 2 | China | $ 19.23 Trillion |
| 3 | Germany | $ 4.74 Trillion |
| 4 | India | $ 4.19 Trillion |
| 5 | Japan | $ 4.19 Trillion |
(As of 28th April, 2025, IMF)
| Currency | Share of global allocated reserves |
| US Dollar | 59% |
| Euro | 20% |
| Japanese Yen | 6% |
| Pound Sterling | 5% |
| Canadian Dollar | 3% |
(Share of Global allocated Reserves, Q1, 2024, IMF)
According to Late Daniel Cohen, prominent French Economist there are five basic prerequisites-financial development, economic size, military reach, foreign policy ties, and effective governance, for a country to make its currency as international currency. Though China by virtue of its clout in global trade is posing a threat to US ‘s global leadership, US is able to retain its global leadership since it is far ahead of China in terms of financial development, economic size, military reach, foreign policy ties, and effective governance. However, Trump’s second term as US President has started showing few cracks in US s foreign policy ties and governance.
US’s import dependency
The US heavily depends on cheap imports from China, covering a vast range of goods—from consumer electronics, toys, machinery, sports equipment and furniture. Domestic production of these goods is not easily or rapidly replaceable, underscoring US ’s deep entanglement in global supply chains. While President Trump aims to rebuild US manufacturing, many of the imports from China, Vietnam, EU, Canada, and Mexico are produced by US-based MNCs who manufacture overseas to exploit lower costs advantages, then sell back to the US market. This shift of manufacturing base of US based MNCs to other countries has resulted in US unemployment particularly in blue-collar factory jobs and low-skilled white-collar office employment. However, the idea of restoring these jobs by imposing tariffs on exporting countries is largely a pipe dream. The US based MNCs will continue to have their global manufacturing base abroad instead of shifting back to US since manpower cost is only one of the components and they also enjoy other advantages abroad in terms access to other resources at a low cost compared to US along with proactive and investor friendly government policies that also offer them subsidies and tax benefits.
Income and wealth Inequality
The neoliberal globalization of the past four decades has also contributed to the income and wealth inequalities which have started widening rapidly during this period though the economies of the countries have witnessed significant growth. Even the advanced economies are no exception to this income and wealth inequalities. The number of billionaires in US surged from 66 in 1990 to 813 by 2024, accompanied by a steep increase in their combined net worth. Forbes reported that the total wealth of US billionaires reached $6.72 trillion in 2024, with several individuals surpassing $100 billion each in personal wealth. The US’s richest 1% increased their share of total wealth from 22.8% in 1989 to 30.8% by 2024. A closer breakdown shows that the top 0.1% alone held 13.8% of the nation’s wealth, while the remaining 0.9% within the top 1% controlled another 17%.
In contrast, the bottom 50% of the population saw their share of national wealth shrink from 3.5% in 1990 to just 2.4% in 2024—reflecting deepening wealth inequality. The US GINI coefficient, a measure of inequality, rose from 34.8 in 1979 to 41.3 in 2022, signalling a worrying trend. Between 1983 and 2016, the share of wealth held by upper-income families increased from 60% to 79%, while middle-income families’ share declined from 32% to 17%. From 1990 to 2023, the top 20% of earners expanded their wealth share from 61% to 71%, while the bottom 20% remained stagnant at around 3%.
Other macro level issues
Rising trade deficits and growing public debt have further deepened the problems in the US economy. US government debt, largely issued in the form of Treasury bonds and securities, has expanded significantly since the 2008 financial crisis.
As of April 2025, the US trade deficit in goods and services reached $140.5 billion, up from $123.2 billion in February. Though trade deficits normally indicate strong domestic demand, they may also negatively impact GDP by increasing reliance on imported goods and reducing domestic production.
The National Assessment of Educational Progress, a congressionally mandated Education Department program that has assessed students in US since 1969, finds that the only 29 percent of fourth graders and 20 percent of eighth graders are even proficient in math. Only 8 percent and 7 percent, respectively, are “advanced” at those levels.
US micro-, small, and medium-size enterprises, like their global counterparts, struggle with productivity. They employ nearly six in ten workers, produce almost 40 percent of value added nationally, and grow into a meaningful share of very large corporations. However, MSMEs in the United States are only half as productive as large companies, compared with 60 percent in other advanced economies. According to Mc Kinsey Report, October, 2024,” Narrowing the productivity gap, which is equivalent to 5.4 percent of the US GDP, is particularly vital in an era of shifting global production.”
Need for long term structural reforms in US
US should have a rethink on its faulty economic expansionary fiscal policy and rising federal debt, and instead focus on long term structural reforms. The long-term structural reforms should aim at- enhancing the productivity levels in the MSMEs, boosting the growth of MSMEs to reduce the levels of unemployment, domestic manufacturing of certain identified items by MSMEs under import substitution. US Government should evolve policies to fund skill development and technology upgradation of MSMEs, give subsidies to startup MSMEs.
US should invest more in education, technology, and infrastructure with main focus on strengthening the MSMEs. Restoration of social cohesion to reduce the wealth inequality by introducing tax reforms is also very essential. Without initiating these long-term structural reforms, levying heavy import duties will only be counterproductive. Let us hope better sense will prevail on the US policy makers.
Reference:
- https://worldfinancialreview.com/the-reasons-behind-the-decline-of-the-united-states-economy/.
- https://www.paradigmshift.com.pk/us-decline/.
- https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality
- https://www.mckinsey.com/mgi/our-research/americas-small-businesses-time-to-think-big.
- https://ips-dc.org/2024-billionaire-round-up/
