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The US has lost its top rank to China. Could it slip further? Just a few years into the new century, it still feels awkward talking about the US in terms of a confidence drop, if that's what this is. The US was the world's most attractive FDI destination in 2003. A year later, it found itself edged out by China. To put things in perspective, the US is still the world's predominant economy, commanding only a little less than every third dollar or so that makes up the world GDP. For a nation of under 290 million people (less than a fourth of China's population), that's a lot of money to go round. It stands to reason that the world's largest economy should also attract the largest chunk of investment, regardless of origin. If this holds true of domestic investment, it also ought to hold true of foreign investment. So, for a long time, the US has been pulling in more money from overseas than any other economy. Now, however, foreign investors seem to be in doubt. The biggest reason is the weakness of the US dollar, which puts a question mark on the international value of dollar-denominated assets. Since early 2002, the currency has lost much of its value. And so long as the 'twin deficits' (domestic budget deficit and trade deficit) continue to be so wide, economists do not see the dollar gaining much strength in the near term. And so, with or without interest rate hikes (to be undertaken, in the normal course, as the economy gains momentum). In fact, if there's fear that many harbour, it is that of an outright dollar crash---though, of course, quite a peculiar set of coordinates would have to come into play suddenly (and together) for such a catastrophe, and there are very few signs of that at the moment. The US treasury secretary, too, has been devoting plenty of attention to the dollar's 'stability' (a relative term this), perhaps hoping for a gentle decline (to help balance the trade deficit) that doesn't induce panic or spin out of control. Still, any rational vulnerability is enough to act as a probability-quantified factor for dollar-projection calculations, and that is enough to act as a drag. That's not to imply that there are no other factors that could explain the US' confidence drop. While the US remains an exemplary market to do business in, it is hard to ignore signs that some of the anxieties that had long characterised emerging markets are now assuming validity in the US as well. This is not a regular 'country' like any other 'sovereign member' of the United Nations, despite what the current nation-state picture of the world continues to depict. \ Globalisation may have been reversed by 9-11 in terms of capital flows, but in many other ways it continues apace---and this is reflected in the way the US talks about itself and the project to globalise its 'ideals'.
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