Byline: Robert J. Samuelson
The United States is the world's leading economic power--but perhaps no longer the world's economic leader. There's a difference. No one doubts the singular wealth or position of the American economy. It's roughly 2.5 times bigger than Japan's, six times larger than Germany's and eight times bigger than China's. The dollar, the reigning currency for world trade and international investment, represents about two thirds of governments' foreign-exchange reserves. American capital markets and investment banks remain supreme. In 2003 global companies and governments sold more than $5.3 trillion worth of stocks, bonds and other debt, says Thomson Financial; 58 percent of that money was raised in the United States, and the top five underwriters were American (led by Citigroup, Morgan Stanley and Merrill Lynch). There's no end of superlatives for the U.S. economy.
But leadership is the ability to set and achieve goals, either by imposing your will or by getting others to follow. Time was when the United States could do this easily. After World War II, Europe needed reviving; the United States sent money through the Marshall Plan. From the 1960s to the 1980s, when currency values displeased Washington, the United States simply abandoned them. In 1971 Richard Nixon devalued the dollar; in 1985 the Reagan administration essentially informed Europe and Japan that they'd have to accept a big dollar depreciation. Times have changed. In its general foreign policy, the Bush administration may seem unilateralist. But on economic matters it has suffered a loss of influence that, frankly, continues a trend. Ironically, it stems partly from the success of American ideas.
By championing "globalization"--even before the term became fashionable--the United States has unwittingly weakened its own leadership. In an increasingly globalized and prosperous world, competing centers of wealth and power emerge: no longer just Europe and Japan but also Brazil, China and India. There's a fragmentation of influence. Some influence moves to markets: those impersonal crowds of buyers and sellers that governments can manage only crudely. And some moves to other countries that, in various global settings, assert their own interests and ideas. Either way, American leadership erodes.
What this means is that the second Bush administration faces inevitable limits on its economic leadership. The United States is often as much the prisoner as the master of events. This matters in at least three critical areas. One is oil; even in 2004, the rapid and unexpected price rise imperiled the worldwide recovery. America's problem is simple: its huge oil use worsens price pressures. Until 1974 the United States was the world's largest oil producer. Ample supplies tamed prices. Now imports satisfy 60 percent of U.S. needs and, with less than 5 percent of the world's population, the United States uses a quarter of global production.
A second concern involves exploding U.S. current-account deficits that--in theory, at least could shake the very stability of the global economy. In 2004 the deficit will hit a record $664 billion, or 5.7 percent of gross domestic product, estimates economist David Wyss of Standard & Poor's. Americans spend far more abroad than they earn; current-account deficits have occurred in 21 of the past 22 years. In turn, foreigners have used their huge dollar earnings to buy massive amounts of U.S. stocks, bonds, real estate and entire companies. At the end of 2003, foreign net investment in the United States totaled $2.4 trillion.
The danger is that a "crisis of confidence"--diminishing foreigners' desire for dollars--could trigger a deep global economic slump. Here's how. For starters, U.S. stock and bond markets might crash if foreigners bought less. American consumer confidence and spending might then plummet. Simultaneously, the already-volatile dollar would drop sharply; other currencies (the euro, the yen) would rise. …