The U.S. economy is one of the largest and strongest economies in the world. What makes the U.S. economy so strong is based on several factors: diverse sectors, robust financial markets, large size, strong labor market and gross domestic product (GDP). GDP is an important factor in a healthy economy, since it provides a key measure of the nation’s overall economic activity, helping to assess its health and track growth, which can help inform policy decisions and business strategies.
The U.S. GDP has outpaced its international peers in recent years. Several European economies have begun stagnating, like Germany, who barely passed by a possible recession this past fiscal year. In 2023, the U.S. had the highest GDP in the world by $13 billion of GDP per capita, followed by Germany. This was adjusted for inflation and the cost of living, however, the U.S. has been outperforming several of its contemporaries since the pandemic. GDP per capita is important since it measures a country’s average economic output per person and is used to also determine a nation’s standard of living. The U.S. has a high GDP per capita, though not the highest, as the U.S. ranks eighth in the world for GDP per capita.
However, with the possibility of a trade war with some of the U.S.’s biggest trade partners, the Atlanta Federal Reserve suggests that the U.S. economy will contract by an annual rate of 2%. This can be extremely volatile, since the U.S. trade deficit soared in January.
Before President Donald Trump was sworn into office, U.S. businesses rushed to bring in shipments of goods before any potential tariffs were levied. This caused the U.S. trade balance to surge by $153.3 billion dollars in January. Trade balances help indicate competitiveness, productivity and overall economic stability, influencing GDP, currency value and investment decisions. If there is a trade surplus, where exports exceed imports, the economy can improve positively. However, if there is a trade deficit, when the imports exceed the exports, this can negatively influence the economy. Also, a trade deficit can create a weaker currency, meaning more of that specific currency is needed to pay for imports.
Traders were one of the groups who were increasing the trade deficit, since one of the most significant drivers were the imports of gold bars. Traders were trying to get ahead of potential U.S. tariffs, but this was not weighed on the US GDP since gold is bought to not be consumed or put into production.
Unemployment is still remaining historically low at a rate of around 4%. The introduction of jobs into the economy has helped with the unemployment levels. Furthermore, wage growth has remained above inflation since the beginning of 2023. This has allowed households to regain their purchasing power which was diminished in recent years.
The stock market after the re-election of Trump was powered with large amounts of investors pouring money into businesses. However, traders have begun to be a sell off of stocks as growing concerns increase over Trump’s approach to the economy and tariffs have begun to influence growth and stoking inflation. The U.S. dollar has increased these concerns as tariffs increase the price of imported goods, increasing inflation, thus forcing the Federal Reserve from cutting rates further back.
There is still much to see with these policies, and how they will affect our economy.
