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Wilful destruction of the world’s most powerful economic engine

Sitting in my favourite armchair, far from the shenanigans of the US president, one can only watch with shock and awe – the haphazard (or is it systematic?) devastation of an economy that has dominated the world for almost a century.

Ever since World War II, the United States has built the world’s most powerful economic engine.

This engine was built on powerful economic, social and policy pillars.

• The largest and most sophisticated financial markets
• Strong institutions and protection of individual freedoms
• A huge University ecosystem
• An entrepreneurial culture and acceptance of risk
• A fairly liberal immigration policy
• A powerful narrative of meritocracy – the Great American Dream
• Belief in free global trade

The education system, along with the promise of economic opportunity, lured young people worldwide. The Rule of Law and trust in institutions made America a desirable place to live. A large, diverse and beautiful landmass also helped.

The financial markets ensured a vibrant flow of capital to entrepreneurs and attracted money from all over the world. The dollar as the default currency of global trade meant cheap money for the US, its companies and consumers. American companies leveraged the talent, money and free trade to become dominant. And Hollywood and “Friends” sold the lifestyle. All this attracted more entrepreneurs and smart migrants, and so the cycle continued.

In recent days, you’ve probably read about all the immigrant founders of iconic American companies. Sergei Brin (Google), Elon Musk (Tesla, SpaceX), Jensen Huang (Nvidia) are all immigrants. Even the famous Alexander Graham Bell (who started AT&T) was born outside the US. But this is only the tip of the iceberg. Many lakhs of businesses, small and large, have been started by immigrants or their children. According to a 2022 NFAP study, out of 582 US unicorns, 55% had at least one immigrant founder!

There’s plenty more research about how immigrants have fueled the US economy, and not just in the 21^st century. The USA is all about immigrants – the original population is a tiny minority.

And now it appears that President Trump is bent on wrecking the intricate machinery.

Financial markets: Suddenly, the dollar is no longer as attractive. US debt is massive and growing rapidly. More importantly, the trust has been broken. First, it was Biden pushing Russia off SWIFT, and then Trump’s capricious behaviour on tariffs. Many foreign governments now want to reduce dependence on the dollar. Further, the US government trying to bully the Fed is not a good sign for investors.

Institutions: The new US government has cut funding for government agencies and regulatory bodies, cut aid budgets without warning, attacked unfriendly media and universities, questioned economic data, and used a pliant Supreme Court to overcome judicial battles. Many actions are being taken by resorting to emergency powers, bypassing the Congress and Senate.

Trade: A series of one-sided tariffs, threats and unpredictable U-turns has upended the global trade order. The US as a champion of free trade, is now history. This will eventually hurt them and their corporations, which have been among the biggest beneficiaries of globalization. If Apple were to assemble their phones in the US, its profits (and market cap) would rapidly dwindle.

Universities: Multiple battles against the most influential universities, cutting funding for research, curbing political activities on campus, restricting visas for students and teachers. The reduced foreign student intake will undermine university finances and reduce research output. Remember that a significant chunk of post-docs and grad students in STEM are born abroad!

Immigration: While everybody expected a clampdown on illegal immigration and a slowdown in visa issuance for skilled workers, the recent H1B fracas threatens to completely choke the flow of global talent to US companies and universities.

Politics has driven a lot of this. Unbridled immigration, inequality, loss of jobs, and many other problems exist, and this brought Mr. Trump to power. But instead of trying to reinforce the scaffolding, it appears that one by one, the foundations of the Great American Dream are being smashed.

And this is not just about immigrants – but affects the younger generation in America. Their country will create fewer jobs, become less productive and poorer, its companies will not be so dominant, its media and universities will lose influence, and we might all stop holding dollars. Or buying McDonald’s burgers!

Many believe that the US will undo many of these arbitrary and damaging policies in a post-Trump era. However, by then the damage may be done.