The United States has the largest economy in the world with a gross domestic product (GDP) of over $20 trillion as of 2020. However, when comparing the US economy to the rest of the world, there are some key metrics and factors to consider.
Size of the US Economy
The US has the largest overall economy in terms of total GDP. According to the World Bank, the US GDP was over $20.9 trillion in 2020. This is larger than the next two biggest economies, China at $14.7 trillion and Japan at $5 trillion. The European Union as a bloc has an economy of similar size to the US at around $18 trillion.
However, the US economy constitutes about 24% of the entire world’s GDP. This means the rest of the world combined produces around 76% of global GDP. So while the US has the single largest economy, the rest of the world taken together is much bigger.
Global Economic Growth
In terms of economic growth, the US economy grew at a rate of around 2.2% in 2019 according to the Bureau of Economic Analysis. This is a slower rate compared to many emerging markets and developing countries.
For example, China and India both routinely grow at over 6% per year. Many Southeast Asian and African economies grow even faster. So while the US economy is large in absolute terms, its growth rate lags many parts of the developing world.
| Country | GDP Growth Rate |
|---|---|
| United States | 2.2% |
| China | 6.1% |
| India | 6.8% |
Economic Output Per Capita
The US also ranks very highly in terms of GDP per capita, a measure of economic output per person. According to the World Bank, US GDP per capita was over $63,500 in 2020. This is one of the highest in the world.
By comparison, China’s GDP per capita was around $10,500 and India’s was under $2,000. So while China and India have large aggregate GDP totals, their per capita economic output is much lower than the US.
However, many advanced economies such as Switzerland, Norway and Singapore have higher GDP per capita than the US. So the US ranks high globally in GDP per capita, but is not necessarily number one.
GDP Per Capita of Select Countries 2020
| Country | GDP Per Capita |
|---|---|
| Qatar | $59,795 |
| Singapore | $58,485 |
| United States | $63,544 |
| Germany | $46,258 |
| South Korea | $31,489 |
| China | $10,500 |
| India | $1,947 |
Sector Composition of the US Economy
The US has a very large services sector that accounts for about 80% of economic activity. This includes areas like finance, real estate, healthcare, education and professional services. Manufacturing accounts for about 11% of the US economy.
This is different from a country like China where manufacturing plays a much larger role, accounting for around 28% of GDP. Emerging markets also often have a higher share of GDP from agriculture compared to the US and other advanced economies.
Share of US Economy by Sector 2020
| Sector | Share of GDP |
|---|---|
| Services | 80% |
| Manufacturing | 11% |
| Agriculture | 1% |
| Other | 8% |
Trade
The US is the world’s largest importer and the second largest exporter after China. However, exports account for just 12% of US GDP compared to over 30% for China. The US economy is relatively more closed with a lower trade to GDP ratio compared to other major economies.
The largest trading partners of the US are China, Canada and Mexico. But the US also conducts major trade with Europe, Japan, South Korea, India and other countries around the world.
Top US Trading Partners 2020
| Country | Total Trade Value |
|---|---|
| China | $558 billion |
| Canada | $612 billion |
| Mexico | $613 billion |
| Japan | $218 billion |
| Germany | $171 billion |
Currency and Foreign Exchange
The US dollar is the most widely used currency globally for international trade, financial transactions and foreign exchange reserves. Over 60% of all foreign exchange reserves are held in US dollars. The dollar is also used as a reference currency for most commodity trading.
This gives the US outsized influence over global financial markets and transactions. It also provides economic and political advantages by maintaining high external demand for dollars even during uncertain times.
The US dominates currency trading with the dollar accounting for 88% of all forex transactions. The next most traded currencies are the Euro at 32%, the Japanese Yen at 17% and the British Pound at 13%.
Innovation and Technology
The US is a global leader in technology, innovation and intellectual property creation. American companies account for most of the world’s most valuable brands including Apple, Google, Amazon, Facebook, Microsoft and more. The US also has the highest number of unicorns or startups valued over $1 billion.
In terms of research spending, the US spends the most on R&D exceeding $500 billion annually. The US is a leader in cutting edge fields like information technology, biotechnology, aerospace, telecommunications, artificial intelligence, quantum computing and more.
The strength of the US in technology and innovation translates into significant economic advantages and high-paying jobs.
Financial Markets
The US has the world’s largest and most liquid financial markets including the New York Stock Exchange and NASDAQ for stocks as well as robust bond and derivatives markets. Daily trading volumes in US equity and debt markets exceed other jurisdictions.
The US also has the highest number of Global Systemically Important Banks or banks that are Too Big To Fail. This includes financial institutions like JPMorgan Chase, Bank of America, Citigroup and Wells Fargo.
US banks account for over 40% of total global banking assets. The US dominance in banking and finance provides funding advantages for American businesses.
Standard of Living
The US generally has a very high standard of living though this varies based on income inequality. The US consistently ranks highly on indices like the Human Development Index and OECD Better Life Index that measure socio-economic indicators like life expectancy, education, income and housing.
US average household income is among the highest globally at over $65,000. The US poverty rate is also lower compared to emerging and developing countries. However, there is significant income inequality with gaps between upper and lower income segments.
Americans also enjoy access to high quality education, healthcare and public services relative to much of the world. Areas like safety, environmental quality, personal freedom and employment opportunities are also significantly higher.
Inequality
While the US economy is large and prosperous overall, there are higher levels of inequality compared to other advanced economies. The gaps between the rich and poor in the US are among the highest in the OECD group of wealthy nations.
The Gini coefficient, a measure of income inequality, is higher for the US versus other major economies. Wealth inequality is also more severe with the top 1% owning close to 40% of all wealth.
Racial disparities in income and wealth are also greater in the US. The average white household has over 10 times the wealth compared to the average African-American household according to Federal Reserve data.
Government Finances
The US has relatively stable public finances compared to other advanced economies. US government debt as a percentage of GDP is around 108% which is higher than Germany but lower than countries like Greece, Italy and Japan.
The US Treasury market is also the most liquid in the world allowing the government to fund deficits easily. Foreign investors own about 30% of US debt highlighting the global preference for dollar-denominated assets.
However, US government debt is on an elevated trajectory in the long-term. Rising entitlement spending on healthcare and social security coupled with lower tax revenue poses challenges for US fiscal policy.
Conclusion
In summary, while the US has the largest single economy, it accounts for just under a quarter of total world GDP. Many advanced and emerging economies are growing faster in percentage terms.
The US remains dominant in areas like technology, innovation, financial markets, the dollar’s role and higher education. But other nations like China and Europe compete effectively in exports, manufacturing, infrastructure and healthcare access.
Going forward, the US needs to focus on educating workers, reducing inequality and promoting growth to maintain competitiveness. Though risks like debt, political uncertainty and trade conflicts remain.
