Economical overview
The US economy is made up of several
important sectors, is characterized by high flexibility
and has been described as a "job machine" for its
ability to create employment. The country is a leader in
research and development in many areas and was at the
forefront of much of the IT revolution. Often, the US
economy has served as a locomotive for the rest of the
world.
Over the course of several decades, the United States
has evolved into an increasingly distinct service
economy, although industry continues to play an
important role. Many of the world's largest and most
successful companies have their domicile here. This is
true in the IT sector, where Apple, Amazon, Facebook,
Microsoft and Alphabet (which owns Google) are the
dominant examples. The oil and gas company Exxon Mobile,
the investment company Berkshire Hathaway, the banks JP
Morgan Chase and Wells Fargo, the retail chain Walmart
and the pharmaceutical company Johnson and Johnson are
all world leaders in their fields.
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However, the image of the United States as an
economic superpower became a thorn in the wake of the
financial crisis that occurred in the late 00s. A
mortgage bubble that burst in the US caused a crisis in
the global banking system and a worldwide recession (see
below). Few were prepared for such a rapid decline, so
suddenly. After state intervention, however, a recovery
began soon, and from 2010, the US economy grew by an
average of about 2 percent a year. The 2020 Corona
crisis is a new shock to the US and the world economy.
This has led to the launch of what is likely to be the
largest federal intervention in the economy in US
history. In the first quarter, the economy shrank by
almost 5 percent and the figure is expected to be
double-digit in the second quarter. Unemployment has
exploded (seeLabor market).
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Strong economy
After the last financial crisis, the recovery took
time, but when Barack Obama's presidential term expired
in January 2017, federal spending and the budget deficit
were back at roughly the same levels as before the
crisis. The unemployment rate, which was close to 10
percent in 2010, had halved and the stock exchange went
like a train. House prices had just returned to the same
level as before the downturn.
The rate of wage growth that had been low had begun
to rise - but the average income for an American family
was still at the same level as 20 years earlier
(adjusted for inflation). The gaps continued to grow,
despite the government's attempts to reduce them.
Large budget deficits due to stimulus measures in the
wake of the financial crisis had more than doubled the
central government debt, to just over $ 23 trillion (or
$ 23,000) in 2019. Since 2012, the debt represents more
than 100 percent of gross domestic product (GDP).
Under Obama's successor Donald Trump, economic
development continued to be favorable in the early
years. However, the economy had started to slow down
even before the corona crisis struck with full force in
March 2020.
Concerns were already over the budget deficit, which
has once again skyrocketed, approaching $ 1,000 billion
by the end of 2019. This meant that it was back on the
same level as 2012 when the country was on its way out
of the deep weakness.
The budget deficit's share of GDP fell to around 4.5
per cent for the fiscal year ending September 30, 2019.
This is higher than at any other time when the country
has not been in a recession. Trump's large tax cuts (see
Calendar) are the main reason for the sharp increase in
the budget deficit. At the same time, central government
spending has increased slightly, mainly due to larger
defense funding and higher interest rates on the growing
deficit.
The financial crisis 2008
Already at the end of 2006, warnings of problems in
the property market came. Low-income borrowers who had
been given cheap loans to acquire a home were no longer
able to pay increased mortgage rates. Many families were
forced to leave their homes. At the same time, house
prices, which had risen sharply since the turn of the
millennium, had begun to fall. Mortgage companies and
financial institutions also had financial problems. The
crisis quickly spread to the outside world as various
forms of securities were created, including high-risk
loans, which were sold on several levels to banks in
other countries as well. The complicated arrangement
resembles a pyramid scheme.
In 2007, banks and lending institutions tightened the
conditions for granting loans while the Federal Reserve
Federal Reserve had to pump in millions of dollars to
ensure that the banks could continue with their lending.
The Federal Reserve also implemented sharp interest rate
cuts in an attempt to calm financial markets.
But the crisis deepened and in September 2008, the US
state had to take over the major mortgage lenders
Freddie Mac and Fannie Mae. Shortly thereafter, the
investment bank Lehman Brothers reported on billion
losses. However, the government chose not to intervene
in rescue measures. The bank's collapse sent shockwaves
around the world. The insurance giant AIG also had
financial problems, but the Federal Reserve went in with
multi-billion loans in exchange for the state becoming
the main owner. Stock prices dropped and it was clear
that the crisis was the deepest since the 1930s.
State interventions
President George W Bush's administration presented a
$ 700 billion rescue package to try to get the financial
system on its feet. The Federal Reserve pledged up to $
800 billion to buy "bad" securities linked to home loans
and to accelerate lending to consumers. The crisis-hit
car industry also received state aid for a short time
(see Industry).
Following the change of power in January 2009, newly
elected President Barack Obama expanded the efforts to
stem the economic crisis. He got Congress to allocate $
787 billion to a mix of tax cuts, social grants and
infrastructure investments.
The financial crisis meant that the US was drawn into
a deep recession. Domestic consumption, which had
previously been an important driver of economic growth,
fell and unemployment rose to record levels.
Some clearing began to be noticed from mid-2009.
Signs of a recovery in the housing market came in 2010,
with rising house prices. Federal Reserve's continued
purchase of government securities helped keep mortgage
rates down and the situation had also improved in the
financial sector. Many banks had repaid the government
loans and new legislation had tightened the rules and
supervision of banks and other financial institutions.
Americans became more willing to open the wallet and
consumption increased.
Foreign trade
US foreign trade has long been the largest in the
world, but now China is an even party and a major
commodity exporter. A large part of US trade is with
neighboring countries Canada and Mexico. The focus has
been shifted from Europe to Asia.
Since the Second World War, the United States has
followed a largely free-trade-friendly line, although it
has been relatively common for domestic industries to be
protected by various forms of trade barriers. However,
President Donald Trump has staked out a drastic
turnaround: he has suspended or torn down free trade
agreements and unilaterally imposed tariffs on various
goods. Trump has long pushed the line that the United
States is unfairly disadvantaged in world trade. As a
main reason, he states that the US has a trade deficit,
ie that imports are larger than exports.
Just over a year after taking office, Trump announced
that steel and aluminum duties would be imposed, at 25
and 10 percent, respectively. The EU, Canada and Mexico
were temporarily exempted while negotiations were in
progress, but no agreement could be reached and customs
duties will apply from June 1, 2018. The counterparties
have in turn introduced duties on US goods.
Standing war with China
Trump has even more blamed China for unscrupulous
trade-related practices. As a result, in several rounds
in 2018 and 2019, the United States imposed duties on
thousands of goods from China. It involved duty rates of
between 10 and 25 percent on everything from handbags to
high-tech industrial goods, the equivalent of
multibillion amounts. China countered similarly with
tariffs on US goods, albeit at a lower value overall.
Following negotiations on trade terms, the parties
announced in December 2019 that they had reached a
preliminary trade agreement, and the United States
halted yet another set of duties that would just be
activated. Trump has portrayed the deal as a huge
success as China promised to buy more agricultural goods
from the US and also to better protect intellectual
property rights. In return, the United States will cut
some tariffs. In January 2020, the parties signed what
is known as the first phase of a trade agreement, which
confirmed what was provisionally announced the month
before. But negotiations continue and it is too early to
blow the battle between the world's two largest trading
nations.
In addition, Trump's policies have so far hardly had
the intended effect: the trade deficit in relation to
China continues to grow. The conflict is considered to
have contributed to a slowdown in growth. The
manufacturing industry and agriculture have been hit
hard by the sharp decline in exports to China. To
compensate the farmers, by the end of 2019, the
government had paid a total of $ 28 billion in
subsidies, which is more than twice as much as the car
industry received during the crisis year 2009 (see also
Agriculture and Fisheries and Industry).
Among the first decisions Trump made after taking
office was also to withdraw the United States from the
Trans-Pacific Partnership (TPP) Free Trade Agreement,
which had not yet been ratified by the Senate. The
agreement was signed in February 2016 by the United
States and eleven other Pacific countries - including
Japan, Australia and Canada, but not China. TPP would
have become the largest free trade area in the world,
the twelve original countries accounting for one third
of world trade. Other TPP countries have made
adjustments to the agreement in order to keep it between
themselves.
Naphtha renegotiated
Trump talked for a long time about completely tearing
up the North American Free Trade Agreement (Nafta), with
Canada and Mexico, which came into force in 1994. In
August 2017, the partners began a renegotiation of the
agreement, where the US's main goal was to reduce its
trade deficit. The talks went on over time, but in
August and September 2018, agreements were first reached
with Mexico and then Canada, to replace Nafta with the
United States-Mexico-Canada-Agreement (USMCA). The new
agreement will, among other things, give the United
States better access to Canada's dairy market, while
Canada and Mexico will be entitled to a quota of 2.6
million cars that protect the automotive industry if the
US imposes general duty on car imports. But the
opposition was great at ratifying the agreement among
Democrats in Congress, who wanted, among other things,
stronger guarantees for labor law in Mexico.
Trump's entry also meant a stalemate for the
negotiations on a free trade agreement that had been
going on for several years between the US and the EU,
called the TTIP (Transatlantic Trade and Investment
Partnership).
Since 2005, the United States has a multilateral free
trade agreement with six countries in Central America
and the Caribbean, Cafta-DR (Central American free trade
agreement – Dominican Republic). During the 2000s, the
United States has also signed bilateral free trade
agreements with about ten individual countries in
different parts of the world.
The US has long had a deficit in the trade balance,
ie the country's imports of goods are greater than
exports. Deficits also prevail in the current account
balance, which also includes trade in services and
transfers and return on capital. The imbalance is
particularly noticeable towards China, something that
Donald Trump has highlighted as extra problematic. Both
countries were already involved in various trade
disputes concerning customs and regulations for
different goods before his entry.
FACTS - FINANCE
GDP per person
US $ 62,641 (2018)
Total GDP
US $ 20,494,100 million (2018)
GDP growth
2.9 percent (2018)
Agriculture's share of GDP
0.9 percent (2017)
Manufacturing industry's share of GDP
11.2 percent (2017)
The service sector's share of GDP
77.4 percent (2017)
Inflation
1.8 percent (2019)
Government debt's share of GDP
104.3 percent (2018)
Currency
US dollar
Merchandise exports
US $ 1 674 330 million (2018)
Imports
US $ 2,561,666 million (2018)
Current account
- US $ 490 991 million (2018)
Commodity trade's share of GDP
21 percent (2018)
Main export goods
machinery, transport equipment (aircraft, computers),
chemical products, food, cereals
Largest trading partner
China, Canada, Mexico, Japan, Germany
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