Why the US economy keeps defying the odds

The American economy is demonstrating remarkable resilience, consistently outperforming many of its global peers despite facing a barrage of international shocks. While developed nations worldwide have struggled under the weight of disruptions like trade tariffs, geopolitical conflicts, and supply chain issues, the U.S. economy has maintained a steady growth trajectory.

Economists had widely anticipated that pressures from former President Trump's trade policies and the conflict in the Middle East would significantly hinder U.S. growth. However, the economy has instead expanded at an annual rate of around 2%. While inflation has presented challenges at times, the feared scenario of weak growth coupled with persistently rising prices has not materialized.

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The own goals that the Trump administration has imposed on the US with respect to trade and immigration are probably the single best example of the underlying dynamism of the American economy.

Joe Brusuelas, chief economist at RSM, points to the inherent dynamism of the American economy as a key factor. He argues that U.S. corporations responded to trade-related taxes on foreign components not by accepting lower profit margins, but by increasing capital expenditure (CapEx). Brusuelas notes that CapEx currently stands at 13.9% of U.S. GDP, a figure that should be slowing given the economic shocks being absorbed, but is not.

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CapEx (capital expenditure) right now is 13.9% of US GDP. That should be slowing, given the mix of supply and demand shocks the economy is absorbing, and it's not.

This robust investment, combined with a notable rise in productivity, has helped offset economic pressures. Another significant contributor is the energy sector. The shale revolution has fundamentally changed America's vulnerability to energy shocks. The U.S. has become a leading oil and gas producer, while businesses have progressively reduced their reliance on petroleum. Brusuelas highlights that the development of fracking and alternative fuels has halved oil's contribution to GDP per unit over the past 50 years.

This contrasts sharply with Europe's approach. While the U.S. has prioritized flexibility and market-driven energy prices, Europe has depended on long-term contracts and interconnected supply networks for energy security. This strategy left many European nations exposed when Russian gas supplies were cut following the Ukraine invasion, and current Middle East tensions further underscore this vulnerability.

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The development since the early 2000s of fracking in the United States, alongside the evolution of alternative fuels, has created the conditions where oil's contribution to GDP per unit has fallen by half over the past 50 years.