Biden’s scorching breakaway

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Expensive United States and cheap Europe

Since the credit crisis, the American economy has grown faster than that of the European Union year-in-year-out. Partly because of this economic wave, American (technology) shares were able to rise to great heights. European shares bit the dust time and time again. And again and again, the refrain from the investment strategists of mainly large banks sounded that a turn from expensive American shares to cheap European shares was imminent. This year, the year of the recovery from the corona crisis, the time had come. The lagging European (mainly value) stocks were going to catch up with the far too fast ahead of the American (technology) stocks. And the dollar? It had no choice but to fall. After all, American shares were far too expensive and the country had also been hit harder by the coronavirus. Unfortunately, this time too, it is probably just wishful thinking.

A scorching breakaway

Led by a 78-year-old, but not yet worn out, president, the United States once again mounted a scorching breakaway. For cycling fans, the United States leaves the peloton utterly bewildered. What is going on? The corona year caused a 3.5% economic contraction in the United States. The European Union, on the other hand, which was less affected by the virus, lost 6.6% of its GNP. You might therefore expect that the European Union would also recover more quickly. Nothing seems to be further from the truth, however. The OECD, for example, expects a recovery in growth in the European Union of 3.9%. For the United States, however, it expects growth of no less than 6.5%. While the European Union will continue to struggle until 2022 to get back to the level it was at before the crisis erupted, the United States will already pass that level this year.

United States goes full throttle

While the European Union is already implementing stricter lockdowns here and there, the vaccination programme falters from time to time, and the government’s stimulus measures have the speed of a faltering pack, the United States is going full throttle on all fronts. Several states, Florida and Texas, for example, have abandoned restrictive measures. The vaccination programme is running like a well-oiled pack of top runners and, last but not least, the authorities are abandoning all timidity when it comes to stimulating the economy. Alongside the broad monetary policy of the central bank, the Biden administration is exploring new horizons with its stimulus policy. The government’s support plan, which has just been approved, is estimated to account for around 11-12% of GNP. Bear in mind that this plan of USD 1900 billion is in addition to the previous government’s plan of USD 900 billion. And that there are still plans to refurbish the infrastructure. This amount is many times greater than the damage caused by the corona crisis.

Savings surplus

In the United States, anyone who wants to can be vaccinated before the beginning of May. The European pack has long been unable to keep up with that pace. Add to that the enormous American consumer savings surplus. In the United States, it is estimated that during the crisis, savings were around 14% higher than usual. In the European Union, savings have also increased, but by between 3% and 7%. Here too, the US economy has considerably more firepower. While the world is still busy recovering from the corona blow, the total volume of world trade has already reached new heights. Here, too, the United States seems to be leading. While exports are still 9 percent lower than before the crisis, imports of goods and services have reached new heights. In other words, the already fairly large trade deficit of the United States with the rest of the world is widening further. After all, more consumption means more imports from the rest of the world.

Buy American

And therein lies the positive aspect of the impressive American advance. The OECD expects that a large part of President Biden’s American Rescue Plan Act will also benefit the rest of the world. After all, a large proportion of the products and services that American consumers will buy come from elsewhere. American consumers – generously funded by their governments – will drag the rest of the world along with them on their road to recovery. That trade deficit is not necessarily a bad thing. Not for us in the European Union, anyway. It is not for nothing that Biden told the American consumer to Buy American. The more American products and services are bought, the less growth will leak out to the rest of the world. 


One can, certainly from our cautious Europe, criticize the unprecedented American aid programme. But you could also say that the United States is giving extra gas where, for example, the European Union is struggling to come in within the time limit. It will not be the first time that the American consumer – out of self-interest, it has to be said – has dragged the rest of the world along in its wake. The Biden administration’s experiment is unprecedented and the outcome uncertain. But that also applies to the demarches of the man in the red, white, and blue jersey. They both go into the adventure with open arms. Nobody knows where it will end. But it is daring.

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