Does the US still have a hegemony over the rest of the world?

Earlier this month, China toppled the US to become the biggest economy in the world. IMF figures showed the Chinese economy, now worth $17.6 trillion, ahead of the US in terms of total size. With the rise of China and other emerging markets’ economies there have been whispers regarding the potential dethroning of the United States as global economic kingpin, a title it wrestled from Britain in the late 19^th century. Some commentators have claimed the financial crisis exposed flaws in the US, with widening inequality, high household debt and a broken, bipartisan political system being symptoms of the country’s malaise.

Yet these murmurs should be labelled as idle talk. The continued hegemony of the US economy should continue well into the latter half of the 21^st century and with good reason. An energy revolution driven by the shale boom in the US is adding jobs and boosting manufacturing. The IEA predicts by 2020 the US will be the world’s largest producer of crude oil, overtaking Russia and Saudi Arabia, a title bestowing considerable benefits. Within currency markets, the dollar remains the preferred choice accounting for 65% of foreign currency reserves and one leg of 87% of foreign exchange transactions, figures which have changed little over the last decade. Most importantly, the economy seems to be motoring along after a sluggish recovery post-2008. The stock market is also just off all-time highs helped by strong business fundamentals. Large US multinationals are continuing to capture increasing revenues within the developing world and at home.

The lack of an adequate challenger to US economic supremacy is also evident. China, the obvious candidate, is coping with an overheated property market it is desperately trying to prevent melting down. The country’s transition to slower growth looks set to be a hard one, rife with political challenges and fraught with risks to its fragile financial system. It continues to lose the advantages of having comparatively lower wages as it forays further into later stages in the development cycle and the renminbi strengthens.

Problems are not confined to China but can be witnessed across the emerging markets. Inflation, weaker currencies and slower economic growth are problems plaguing larger developing markets such as Brazil, Indonesia and India.  Structural reforms appear necessary and GDP per capita in these countries still languishes far behind the GDP of the United States.

Within the developed world, the EU and Japan appear to be the only powers capable of posing a serious threat to US economic supremacy. However, the former is marked by the legacy of the Eurozone crisis and divisions among the member states, while the latter never really recovered its lustre since its economic crash of the early nineties.  The US share of world output is holding steady at 25% with fast growing emerging markets gaining from the shrinking shares held by the EU and Japan.

While it is difficult to envisage exactly how the world will look in the future, it is fairly certain that US economic supremacy is here to stay. China may have overtaken the US in terms of size but there is more to being the captain of the world economy than simply the value of total goods and services produced. The economic fundamentals of the US are strong and it continues to remain head and shoulders above the rest of the world.