Recently I listened to a podcast between its host Barry Ritholtz and Torsten Slack, chief economist at Apollo, which gave me some fresh insights on why the US economy is firing on all cylinders despite the political turmoil going on. Also, he shed lights on why China is not going to be able to a dominant player on the world stage. Below I summarize some of the highlights.

The United States remains the dominant force in the global economy despite challenges and shifting dynamics in other major economies. From its unparalleled innovation ecosystem to its resilience in the face of rising interest rates, the U.S. continues to drive global growth. Several key factors explain why the U.S. economy remains strong while other regions struggle.

A Less Interest Rate-Sensitive Economy

One of the most striking aspects of the U.S. economy is its resilience to rising interest rates. The Federal Reserve’s aggressive rate hikes in recent years would typically be expected to slow down economic activity significantly. However, this has not happened in the U.S. for three major reasons:

  • Fixed-Rate Mortgages: Unlike other major economies where mortgage rates fluctuate with interest rate changes, 95% of U.S. mortgages are locked in at fixed rates, shielding homeowners from higher borrowing costs.
  • Corporate Debt Structure: U.S. corporations also locked in low borrowing costs during the pandemic, making them less vulnerable to rising interest rates.
  • Consumer Strength: Excess savings from pandemic-era stimulus measures have continued to support consumer spending, preventing a slowdown. This effect is going away though.

These factors have allowed the U.S. to maintain growth while other economies, such as those in Europe, have struggled with higher borrowing costs.

Unmatched Innovation and the AI Boom

The U.S. remains the leader in technological innovation, particularly in artificial intelligence (AI) and data infrastructure. The U.S. has over 6,000 data centers—more than the rest of the world combined. This dominance in AI and cloud computing is fueling investments in:

  • Data centers
  • AI-driven automation
  • Semiconductor production (supported by the CHIPS Act)

The economic impact of this boom is substantial, contributing 0.2% to annual GDP growth and driving stock market performance. This technological edge keeps the U.S. at the forefront of global economic growth.

Strong Fiscal Tailwinds

The U.S. government has played an active role in maintaining economic growth through large-scale spending initiatives, including:

  • The Infrastructure Act
  • The CHIPS Act
  • The Inflation Reduction Act These programs have driven investment in infrastructure, manufacturing, and clean energy, further reinforcing economic expansion.

Additionally, potential tax cuts and deregulation under the current administration could further boost corporate investment, making the U.S. an even more attractive destination for capital.

Global Economic Divergence: The U.S. vs. the Rest of the World

While the U.S. is thriving, other major economies are facing significant headwinds:

  • China’s Slowing Growth:
    • China is dealing with a shrinking workforce (losing 1 million workers per month over the next decade!).
    • The country is still struggling with a deflating real estate bubble.
    • Ongoing trade tensions with the U.S. and Europe are weighing on growth.
  • Europe’s Inflation and Structural Weaknesses:
    • Europe’s inflation remains higher than the U.S., largely due to delayed wage adjustments and energy market instability.
    • Unlike in the U.S., most European mortgages are variable-rate, making households more sensitive to interest rate hikes.
  • Japan’s Economic Rebound:
    • Japan has seen an economic resurgence due to currency depreciation, corporate governance reforms, and geopolitical advantages as companies shift investments away from China.

While the global economic landscape is mixed, the U.S. stands out as the most resilient major economy.

The U.S. as a “Closed” Economy

A unique advantage of the U.S. is that it is relatively insulated from global economic downturns. Unlike smaller open economies like Germany or Australia, the U.S. relies less on exports for growth. This means that even if Europe or China faces economic weakness, the U.S. economy can continue growing based on domestic demand, fiscal policy, and innovation. This is a crucial point. One should never underestimate the vast and absorbent domestic economy of the US.

Capital Markets and Investment Leadership

The U.S. is home to the deepest and most liquid capital markets in the world, attracting global investment. The S&P 500 remains the world’s most influential stock index, and 40% of its revenue comes from international markets. Despite high valuations, U.S. markets benefit from:

  • Strong corporate earnings
  • A diversified economy
  • Leadership in key industries (technology, finance, healthcare)

Investors worldwide continue to favor U.S. assets due to their relative stability and strong return potential.

Challenges to Watch

While the U.S. economy is performing exceptionally well, there are risks to consider:

  • Potential Inflation Resurgence: If tariffs, immigration restrictions, and corporate tax cuts lead to overheating, inflation could rise again.
  • Stock Market Concentration: The dominance of a few large tech stocks in market indices could pose risks if valuations become unsustainable.
  • Global Trade Tensions: A full-scale trade war with China or new tariffs could impact supply chains and consumer prices.
  • Political stability. It is true democracy is deteriorating in the US.

Conclusion

Despite global economic uncertainty, the U.S. remains the engine of the world economy. With a combination of technological leadership, fiscal strength, and consumer resilience, the U.S. continues to power ahead while other economies face structural challenges. If current trends persist, the U.S. is well-positioned to maintain its dominance in the global economic landscape for years to come.