Can the U.S. economy adjust to globalization?

By Money Matters Editors


It is not, to put it diplomatically, a stellar time for the U.S. economy.

The unemployment rate is approaching 10 percent, and most economists would be very happy if it stopped rising at that level. Home foreclosures hit a record during this recession, and while not rising, are still way too high for economic health. And, of course, the manufacturing, business investment, and export sectors, while having recently displayed signs of stabilization, are not, in recovery-mode yet. And the U.S. consumer, after a decade of over-consumption, is saving like never before – a 5 percent annual rate – good for investment, long-term, but a depressor of GDP growth, short-term. In other words, all the key sources of demand are stagnant or barely growing – not nearly the conditions for robust GDP growth that one typically sees during the initial stage of an economic recovery.

The above is not a prescription for a robust U.S. recovery. Then what will turn it all around? What will get the ball moving in the correct direction, or ‘get this economy moving again,’ as President John F. Kennedy said in 1961.

The answer may be, ironically, the American economic system itself. In other words, the U.S. economy's ability to adapt, to innovate, and to renew itself may be the grease that gets the gears in motion, to use a machinery metaphor.





What will be the new growth engines?


The $64,000 question – or in this case the $14 trillion question, given the size of the U.S. economy – is what sector(s) will form the basis for this renewal his American economy in the new era? You can scan the dozens of research reports and economic forecast, as the we, as Money Matters has, and obtain dozens of answers. The reality, at this juncture, is that no one really knows what new sectors will serve as the engines of growth for the U.S. economy.

Without question, though, those new sectors have to offset the millions of manufacturing jobs and industrial output lost to globalization for the United States to remain a strong, versatile, and prosperous nation with ample economic opportunities, and sustainable GDP growth.

Further, given the ‘frugal consumer’ era in which Americans continue to belt-tighten and save to make up for a decade of over-consumption, the economy may become more quality-of-life oriented and less consumption-oriented. (Consumption currently accounts for about 60-65 percent of U.S. GDP.)

Here are the strong candidates for engine of growth status: health care services, information technology, infrastructure, education, renewable energy, biotechnology, and high-end/technology-intensive manufacturing.

Of the above, high-end/technology-intensive manufacturing looks especially promise. China, low cost producer to the world, will continue to dominate the low-end manufacturing realm – which includes everything from cheap clothes to toy stuffed animals for children.

But high-end/tech-intensive manufacturing may become the U.S.’s forte: the sector would include solar panels for homes, to next-generation commercial jet (Boeing’s 787), to smart cooling/heating systems for your home, to high-mileage green cars, to wind mills.

The above is not to dismiss the enormous hurdle that globalization presents: the U.S. economy is being tested as international business competitors enter almost every space. Moreover, it is too soon to predict which sectors will be the clear winners or even how many winner sectors the U.S. will have in the new era or during the economic period known as the ‘new normal’ of lower slower economic growth, less consumption, and increased government regulation. But there’s reason to believe the U.S. will discover/identify at least a few, to remain a major player on the international stage. That may seem overly optimistic, given the current condition of the U.S. economy, but a review of history will show it’s not: the United States has overcome bigger hurdles in the past.