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The U.S. economy has become less competitive in the past couple of years. Here’s why

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For the past three decades, the U.S. has been listed as one of the world’s top five most competitive economies, in rankings produced by the International Institute for Management Development (IMD) in Switzerland. Just two years ago, the U.S. topped the list.

Those days are over, at least for now.

In the 31st edition of the ranking, released Tuesday, the U.S. had fallen to 10th place, just behind the United Arab Emirates. As it was last year, the list is led by Singapore, now directly followed by Denmark and Switzerland.

IMD’s closely watched ranking is based on a mix of hard data, from sources such as the World Bank and International Monetary Fund, and qualitative data gleaned from a survey of over 6,300 mid- and upper-level executives across 100 countries. The results take into account everything from trade and investment to countries’ educational systems and technological infrastructure.

So why has the U.S. dropped so noticeably? It’s largely owing to the Trump administration’s trade policies, according to Christos Cabolis, the chief economist at IMD’s World Competitiveness Center and one of the authors of this year’s report.

“One of the pillars of competitiveness is how open an economy is, and we measure that in different ways, from the perceptions of executives, to trade [statistics],” Cabolis told Fortune. President Donald Trump’s ignition of a trade war with China over the past of couple years “brings some of the results we see in how the numbers of the U.S. went down,” he said.

In terms of IMD’s methodology, Trump’s Chinese-tariff broadside actually provided a double whammy. Not only did the measures reduce the U.S.’s openness to international trade, but they also had a negative impact on U.S. public expenditure—think of all those billions that went to bail out American farmers who had been hit by China’s retaliatory tariffs, shortly after the administration had also cut corporate taxes.

“We see the countries that performed better this year are also the ones that have much better structure and discipline with relation to public finance,” said Cabolis, who also noted that successful countries were those with a strong societal framework and effective governments. Social cohesion was not an area where the U.S. was doing well recently, he warned.

According to Cabolis, Singapore topped the rankings because of its ability to acquire international talent and the quality of its educational system. In Denmark, infrastructure and business efficiency were factors in the country’s strong performance.

Respondents to IMD’s Executive Opinion Survey were most likely to cite the U.S.’s economic dynamism and easy access to financing as the country’s “key attractiveness factors.” Competent government and effective labor relations were the least-cited factors.

One quirk of IMD’s rankings is that the quantitative data, which enjoys much heftier weighting in the list’s compilation, comes from the preceding year, while the survey data is gathered in the year of publication. So in this case, the hard data comes from 2019, before the novel coronavirus became a pandemic, but the questionnaire responses came from February to April of 2020—a period in which the urgency of the situation became apparent and countries started locking down their economies.

That means next year’s rankings will be heavily affected by this year’s pandemic: GDP levels and growth will likely be down in most places, as will consumption, while unemployment will rise. “How well a particular government will deal with these tremendous issues will actually affect the position of next year’s ranking,” Cabolis said.

However, he suggested, the qualities described in this year’s report could provide a good indicator of what is to come.

“Some of the elements that we capture are related to the adaptability of governments to business cycles—how resilient a particular government is with everything that has happened,” Cabolis said. This year’s high-ranked countries “are the economies where both individuals and governments adapt and are flexible, and businesspeople are able to navigate the economy.”

Nonetheless, he added, the effectiveness of countries’ health care systems will likely play an important role in the 2021 rankings—as will the issue of inequality.

“Even though in exposure to the virus all of us are in the same position, in terms of the effects of the virus it is undoubtedly a fact that we are not,” Cabolis said. “If exacerbating inequalities exist, this may have a negative effect next year.”

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Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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