The Global Question: Who Needs the U.S.?

Why is Nicole Leibinger-Kammüller still smiling? The chief executive of Trumpf, a family-owned machine-tool firm in Germany, has watched orders from the critical U.S. market slow significantly in the past few months. But while the housing-bled U.S. economy has been sluggish, and the dollar weak, it's all proving quite manageable. "We can feel the U.S. slowdown, but it's not unsettling. There's no crash," Leibinger-Kammüller says. Trumpf's sales of its metal-cutting machines elsewhere--to Saudi Arabia, to Singapore and especially in Germany--continue to rack up double-digit growth rates. The buoyancy of global trade "is amazing. We have to keep telling ourselves: Careful, this can't last," she says.

Economists and policymakers who will be attending the World Economic Forum in Davos, Switzerland, beginning Jan. 24 have been furiously debating whether the world has "decoupled" from the U.S. economy. The U.S. constitutes about 28% of global gross domestic product (GDP) as measured in dollars, and it accounted for one-fifth of worldwide growth from 2000 to 2006. When the U.S. faltered in the past, the rest of the world staggered. And certainly there are signs of fatigue. A cooling housing market slowed U.S. GDP growth to 2% in the third quarter, and even if the economy has strengthened a bit since, as many economists believe, its growth is still way below the blistering 5.6% rate of the first three months of 2006. Jim O'Neill, London-based head of global economic research for Goldman Sachs, says that even if the U.S. economy remains soft for much of the year, "we're pretty confident that the rest of the world will withstand it." So far at least, businesses ranging from Hong Kong electronics makers to German machine-tool producers are riding out a period of U.S. weakness. At the German Engineering Federation in Frankfurt, chief economist Ralph Wiechers concurs. "It used to be that the U.S. economy supported the world economy," he says. "Now it's the other way around."

The old industrialized-world triad of the U.S., Japan and Western Europe no longer dominates to the degree it once did. China is close to snatching the No. 3 slot on the list of world's biggest economies away from Germany, and India and South Korea are set to join the top 10 within a decade. India's GDP has expanded by $350 billion in the past six years--equal to the entire economy of the Netherlands in 2000. Once moribund countries such as Argentina and Russia are doing much of the heavy lifting today. According to the World Bank, developing nations collectively grew about 7% last year--more than twice as fast as high-income countries. They now account for 49% of world economic output, up from 39% in 1990.

Still, even the biggest optimists concede that nobody would escape unscathed if the U.S. economy were to hit a wall. Its big local trading partners, Mexico and Canada, would probably be hurt the most, but the reverberations would be felt worldwide. The key bone of contention is the extent of the suffering.