When America sneezes…

22 December 2022

America’s sheer size and the dominance of the US dollar as a reserve currency makes it a bellwether of the global economy, explains independent economist Dr Rebecca Harding

Ever since the 1929 Wall Street Crash, it has been common for economists to quip, “When America Sneezes, the rest of the world catches a cold.”1 The Chinese economy is apparently suffering from long Covid and despite the intention to release it from the grip of lockdown in the wake of protests,2 fears that China’s sluggish growth will impact the global economy’s performance in 2023 still prevail.3 Yet it is the Federal Reserve, and its view of the US economy that still has the major impact on global markets and the confidence of investors. So, does this mean that the mantra still holds?

The short answer to this question is ‘yes’. Despite the supply chain disruptions caused by Covid, and the energy crisis in Europe as a result of the Russia-Ukraine conflict, the US economy and how it performs in 2023 could arguably determine the nature, depth and length of any recession in the rest of the world.

“The US economy and how it performs in 2023 could….determine the nature…of any recession in the rest of the world”
Dr Rebecca Harding, Independent trade economist

The mighty US dollar

There are three reasons why this is the case.

First, and quite simply, size matters. The US economy accounts for the largest proportion of global economic activity at nearly 24% of global GDP.4 While China’s economy had grown more quickly than the US up to the Covid pandemic, it still only accounts for 18.5%, while Japan accounts for 5% and Germany 4.4%. Although the US has lost its place as the world’s largest exporter (its exports were US$1.6trn in 2021 compared to China’s US$2.8trn) the US is the world’s largest importer at about US$2.9trn compared to China’s US$2.5trn in 2021; At US$1.4trn, Germany imports under half the amount that the US does.

Second, the sheer size of the economy is arguably less important than the dominance of the US dollar in financial markets, energy markets, foreign exchange reserves and of course international trade. The dollar is the leading reserve currency accounting for 60% of international foreign exchange reserves and the bulk of these are held in US Treasuries, in other words, US government debt. Although foreign ownership of US debt has declined – which makes the US economy less vulnerable to, say, China disposing of its holdings – there is still approximately 33% held by foreign investors.5 Only in Europe is the dollar not the main currency for international trade.6

More than this, the Bank for International Settlements estimates that at the end of the second quarter of 2022, some US$13,257bn was outstanding in US dollar denominated debt, around 40% of which was in emerging economies.7 According to the Financial Stability Board, around 80% of emerging market debt is dollar denominated.8

Third, this global dependency on the dollar is why the US economy will determine the economic narrative in the coming year. Because the dollar is central to emerging market debt, energy markets and global trade the dollar is also the mechanism through which the US effectively could fuel inflation around the world. For example, if a country prices its trade in US dollars, and the dollar strengthens, this will help exporters, but puts up the prices of imports. Oil and gas prices are increasing anyway as a result of the Russia/Ukraine crisis. If there is then a dollar conversation to be made, this pushes up prices disproportionately.

All of this helps to explain why, between February and March 2022, after the immediate onset of the Russia/Ukraine crisis, US exports grew in value terms by more than in other G7 countries, although not as much as the amount seen in China. US exports of oil and gas, which were highly restricted until 2015, grew in value terms between 2020 and 2021 by 60% to make it the country’s largest export sector. From the end of 2021 to June 2022, the value of US exports of oil and gas rose by more than 40%.

America and China

It is worth dwelling on the relationship between the US and China for a moment since this is critical to the question of which economy has the bigger impact on the world. Since 2016 the two countries have been locked in a trade war, which shows little signs of abating. However, over that period, US imports from China have grown at an annualised rate of just under 5% while exports have grown at an annualised rate of nearly 6%.

There is little sign of this trade interdependency diminishing at present, and there has been an interesting structural shift in the type of trade being done between the two countries. Where in 2016 US exports to China were predominantly in electronics, oilseed, machinery and components, by 2021, oil and gas had become the second largest export sector. During the early part of 2022 oilseed and oil and gas were the two largest traded sectors – these are also the ones most affected by shortages as a result of the Russia/Ukraine crisis. More than this, even as the US starts to shift its supply chains in electronics back to home and reduce the access of Chinese businesses to American technologies, US imports of electronics of all types have grown at an annualised rate of nearly 3.5% and exports by more than 8%.

US forecasts are suggesting that the economy is more resilient than analysts predicted.9 The Federal Reserve is suggesting that inflation may have peaked given that there was a slower than expected increase in the rate10 and the fact that the US administration has been releasing its Strategic Petroleum Reserves suggests that it is keen to play its part as a major oil exporter in the world to keep a lid on energy price hikes as much as possible.

When the phrase “When America Sneezes, the rest of the World catches a cold” was first used, the global economic system was less integrated than it is now. The US’s interdependency with China and its role in global energy supplies is likely to increase as a result of the Russia/Ukraine crisis. The world is undoubtedly dependent on US economic performance – let’s hope that the resilience that currently seems to be building in America’s economy is genuinely able to lessen the effects of the chill that seems to have settled on Europe’s.

Dr Rebecca Harding is an independent trade economist and a regular contributor to flow


1 Amended from when Austrian politician Klemens von Metternich (1773 – 1859) who, at the time of Napoleon, wrote, “When Paris sneezes, Europe catches a cold.”
2 See bbc.co.uk
3 See theguardian.com
4 See investopedia.com
5 See federalreserve.gov
6 See federalreserve.gov
7 See stats.bis.org
8 See fsb.org
9 See edition.cnn.com
10 See bloomberg.com

Dr. Rebecca Harding, Independent tradeeconomist, CEO Coriolis Technologies

Dr Rebecca Harding

Independent trade economist

Stay up-to-date with

Sign-up flow newsbites

Choose your preferred banking topics and we will send you updated emails based on your selection

Sign-up Sign-up

Subscribe Subscribe to our magazine

flow magazine is published twice per year and can be read online and delivered to your door in print

Subscribe Subscribe



Trade and inflation: the five basic issues Trade and inflation: the five basic issues

As the world grapples with cost of living and energy security crises, inflation continues its relentless rise. Dr Rebecca Harding considers five questions around the links between inflation and trade, finding the answers in trade flow data

Trade and inflation: the five basic issues More


Why it’s time for a new look at rare earths Why it’s time for a new look at rare earths

Greater diversity of rare earth metals (REM) supply is essential if the world is to address the dominance of producers such as China and Russia, suggests Dr Rebecca Harding

Why it’s time for a new look at rare earths More


Farewell to hydrocarbons Farewell to hydrocarbons

The Ukraine crisis has highlighted Europe’s dependence on Russia for gas while diverting attention from the wider issue of delivering on COP26 net zero pledges. Trade economist Rebecca Harding analyses the trade flows and explains how clean energy supply chains are also highly interconnected

Farewell to hydrocarbons More