In Dresden, eastern Germany, Volkswagen recently shut down production at its “Transparent Factory,” once designed as a showcase of European industrial strength. Halfway across the world in Spartanburg, South Carolina, BMW operates its largest manufacturing plant, underscoring a broader shift in global economic momentum.
The contrast between the two facilities reflects a question that has long preoccupied economists: why has the United States economy continued to outperform many advanced peers despite facing the same global disruptions?
Over recent years, the global economy has been hit by overlapping shocks, including trade disruptions linked to tariff policies, tighter immigration rules, and energy instability driven by conflicts in the Middle East. Many analysts expected these pressures to slow US growth. Instead, the economy has remained resilient, with steady expansion and only intermittent inflation spikes.
Joe Brusuelas, chief economist at RSM, says the trade tensions themselves may have highlighted the underlying strength of the US system. According to him, companies responded to higher import costs not by cutting back but by increasing investment. Capital expenditure in the US currently stands at about 13.9% of GDP, a level he notes is unusually strong given economic headwinds.
Much of that resilience has been supported by productivity gains and sustained business investment. Despite uncertainty, the US economy has continued to expand at roughly 2% annually, avoiding the stagnation seen in parts of Europe.
Energy markets also play a central role. While the Middle East conflict has pushed global oil prices higher, the United States is far less exposed than in previous decades. The expansion of domestic oil and gas production through fracking has reduced reliance on imports and softened the impact of external shocks.
In contrast, Europe remains more vulnerable due to its dependence on long-term energy contracts and imported supplies, a weakness exposed after the disruption of Russian gas flows following the war in Ukraine.
Rebecca Christie of the Brussels-based Bruegel think tank argues that differences in economic performance also reflect contrasting attitudes to risk. She describes the US system as more willing to absorb short-term volatility in exchange for long-term gains, while Europe tends to prioritise stability and caution.
This divergence extends into financial systems. American firms often rely on equity markets and venture capital, allowing faster expansion and greater flexibility. European companies, by contrast, depend more heavily on bank lending, which limits risk-taking but also restricts rapid scaling.
Christie also warns that strong macroeconomic performance in the US masks deep inequality. Rising living costs, housing pressures, and slower job growth in certain regions continue to strain households, even as national indicators remain strong.
Recent data shows the US labour market added 172,000 jobs in May, exceeding expectations. However, inflation has also picked up again, with consumer prices rising 4.2% year-on-year, raising concerns that price pressures may be returning.
