3 Reasons the U.S. Economy Might Be Screwed

I've lived outside the United States for about two-thirds of my life, and now I live in the southeast Asian city of Singapore. When I return to the U.S. to visit family and friends, I see things from an outsider's perspective.

In my most recent visit, after being away for a year, there are three things that struck me. The country is remarkably affordable, but there is significant distrust in trade deals and economic globalization that helps keep prices low by removing or minimizing the effect of tariffs and other barriers. Its transportation infrastructure, including its roads and bridges, is falling apart. Many people do not trust their government. 

America is Cheap

Maybe it's because I currently live in the world's most expensive country, but other than in some of the big cities on the east and west coasts, things really don't cost very much.

In many place, real estate is relatively cheap, especially compared to Singapore and Hong Kong. Thanks to lower taxes, cars are inexpensive. In Singapore, a car can easily cost four times what it costs in the U.S., mostly due to taxes. Food, whether eating out or at the grocery store, is cheap. And Wal-Mart, Costco, Home Depot and outlet malls offer an unbelievable variety of goods at what are arguably some of the lowest prices in the world.

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So what? America enjoys low prices on a lot of stuff thanks to globalization. Asia, and other parts of the world, have been America's factories for decades, exporting low prices to the U.S. But there is a wave of anti-globalization rising all over the world, whether it's from Donald Trump or Brexit.

Trump has implied he'll launch a trade war with China if he is elected president. And the Trans-Pacific Partnership, which will ease trade between 12 Pacific Rim countries that make up about 40% of the world's economic output, is being talked down by both presidential candidates. It may end up not being approved by the U.S., at all.

And Britain, the world's fifth-largest economy, has decided to leave the EU, the world's largest trade bloc. None of this bodes well for globalization.

Asia is not the only potential loser from this trend. In fact, one of the biggest losers from reduced globalization is the American consumer. This is because less globalization will mean higher prices for a lot of stuff in the U.S. And if Americans start buying fewer things because prices are climbing, it will hurt global economic growth. After all, the American consumer has been one of the main drivers of economic growth worldwide.

Crumbling Infrastructure

America is literally falling apart. Whether it's in cities, highways, airports or elsewhere, U.S. infrastructure is in bad shape. (I'm writing this during an endless ride on the Washington, D.C. metro, many parts of which are operating at reduced capacity for months because of an enormous upgrade backlog. In some countries, waiting for 20 minutes on a sweltering metro platform because of bureaucratic incompetence would be a cause for insurrection.)

In 2013, The American Society of Civil Engineers' report card of America's infrastructure gave the U.S. a D+ rating. This basically means that America's bridges, highways and waterworks received an overall failing grade. This shows America's need for modernization and upgrading.

But improving America's infrastructure will not be cheap. The American Society of Civil Engineers estimates that an investment of $3.6 trillion is needed by 2020 to bring U.S. infrastructure back to acceptable levels.

So what? To arrest its physical decline, the U.S. needs to rebuild on an epic scale. It's not just about having pretty new bridges. It comes down to efficiency and safety. If infrastructure continues to suffer, productivity growth will remain low or stagnant. This is because if the roads, rail lines and ports are in decline, it makes moving people and products around more time-consuming. And since time is money, it will make it all more expensive as well.

The problem is that sewer lines and electric grids are not as exciting and emotional to talk about as terrorism, immigration or gun control. And the benefits are not as quickly or easily apparent. But it's arguably more important than a lot of issues the media and politicians focus on. After all, if a bridge collapses, if tap water is unsafe, if sewage has nowhere to go, or if people go days without power, a country can have huge social and economic problems.

The developing world, in places like Asia, often has infrastructure that is miles ahead of what's in the U.S. Enormous investment in infrastructure has been a key to the region's stellar economic growth in recent decades. It also means that the ground work has been laid for the next few generations of productivity, and economic, growth.

Dwindling Trust

Just 35% of Americans trust the national government (as of 2014), according to the United Nations' Human Development Index. Out of the world's 20 most developed nations, that was the second-lowest number (only South Korea was worse). (Interestingly, Singaporeans trusted their government the most.) Even now, both Donald Trump and Hillary Clinton, the two candidates for president, both have historically high unfavorable ratings with voters.

So what? These high levels of distrust in government and its role could be seen as a sign of healthy skepticism. But this is part of a long-term trend of declining trust in U.S. government and institutions. And nothing indicates this trend will be reversing in the near future.

If people don't trust the government, the rule of law can eventually fall apart. If there is no rule of law, contracts can't be enforced, regulations can change with little notice and it becomes harder to run a stable, profitable business. As many emerging markets have discovered, it can take generations to create rule of law where none had existed before.

Of course, this doesn't mean the U.S. is on the verge of losing its status as one of the world's best places to do business. Americans will continue to have one of the highest standards of living anywhere in the world. But over time, this distrust of governing institutions will erode the foundations that the current U.S. economy was built on.

The U.S. is still the economic, social and cultural standard for much of the world. Anti-globalization, crumbling infrastructure and distrust will not change that overnight. But none of these issues bode well for the U.S. staying at the top over the long term.

Kim Iskyan is the founder of Truewealth Publishing, an independent investment research company based in Singapore. Click here to sign up to receive the Truewealth Asian Investment Daily in your inbox every day, for free.

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