After the American Century
When Trump took office the dollar was strong, but since then it has fallen, weakening the purchasing power of Americans in the world economy. The short term effects are worrying; the longterm effects are dire
Short Term Effects
ON January 13, 2025, at the end of the Biden presidency, the dollar and the Euro were almost equal in value. For $102 you could buy €100. Yesterday, it cost $117 to purchase €100. The dollar lost roughly 15% of its value in 8 months.
Add the tariffs to this equation. Assume the smallest tariff that any nation gets, 10%. That pushes up the price to €110, or $1128.70. An increase of more than 25%!
Furthermore, consider the following trends under the Trump Administration
1. The dollar has fallen 15% since Trump became president.
2. The job market has stagnated since April, with almost no new jobs.
Comparison: The last two months under Biden there were 500,000 new jobs.
3. Trump's policies have angered Canadians and Europeans, and fewer are coming to the US in 2025. Current estimates are that the loss of tourism in 2025 will mean $12.5 billion loss of revenue.
4. Demand for electricity is increasing. Some experts think the demand for electricity will rise 25% in the next ten years. But Trump is killing wind and solar projects that could help meet that demand. When supply is inadequate, energy prices rise.
5. Inflation is up. The Federal Reserve Bank of Cleveland tracks and predicts inflation. The Consumer Price Index has moved from 2% to 3% already since Trump took office, and the tariff effects are only beginning to be felt. Prices of new cars, for example, will increase due to tariffs. If energy costs continue to rise, it is possible the rate of inflation could reach 4%.
6. To reduce inflation, the usual strategy is to raise interest rates, which dampens demand and slows down economic growth. But that is not an attractive option when the labor market is already stalled. Trump is pressuring the Federal Reserve to lower interest, which could lead to the higher inflation, rising even beyond 4%.
In short, Trump's policies have weakened the dollar, stalled the labor market, driven away tourists, halted energy development, relied on deficit spedning, and pushed up inflation. He has also alienated traditional allies, notably Canada and the EU, and angered nations the US once was trying to woo, notably India and Brazil.
Long Term Effects
Those are immediate effects. More longer term, Trump's policies are driving away top scientists and handing China the chance to take global leadership in science. Indeed, one could argue the US is already in second place. The World Population Review reports that "China has authorized over 2.53 million patents in the past five years, with a 13.4% average annual growth rate." In 2023 the Chinese received almost 800,000 patents. By comparison, the number of US patents has been declining slightly for several years, hovering just under 600,000. The US ought to be pumping more money into scientific research, but Trump has cut funding instead. The US is falling behind.
Annual GDP Growth per capita, China vs The United States, 1980-2024
The US has been losing ground to China since the 1980s. As the above chart from the World Bank shows, in every year since 1980 China's economy has grown more rapidly than the American economy. Note that this graph concerns growth per capita. China has by far the larger population. China has been rapidly raising the income level for its more than 1 billion citizens. The Americans are still ahead in income per person, but the advantage is eroding. Note, however. that the spectacular Chinese growth rates between 1980 and 2010 probably cannot be duplicated.
Conclusion
Trump's first 8 months as president has been a disaster. He inherited a strong economy with rapid job growth and low inflation, but he has squandered both in a quixotic quest to revert to the American economy of 1925, based on extensive use of fossil fuels, low taxes, and high tariffs. But these short term mistakes pale by comparison with his failure to understand that in the long-term the United States can only prevail with strong foreign alliances and through leadership in science and innovation. He has undermined the US internationally, angering allies, and driven away potential friends with abusive tariffs. China appears, by comparison, to be a dynamic nation, both economically strong and technologically agile.
If these trends continue for three more years, then the Trump presidency will mark the end of American leadership, leading to a global realignment. This new order is already emerging, and can take more than one possible form. The worst scenario is that Trump will continue to dither over what to do about the Russian invasion of Ukraine. His inaction and unreliability have already pushed Germany to begin rearming and troubled the NATO alliance. Trump may pretend otherwise, but to lose Ukraine would be to lose the world order that prevailed in the Cold War. If "America First" means going it alone, then Trump has chosen decline. By 2028 the nation may find itself mired in debt and plagued by stagflation. The dollar might then cease to be the world's currency, as no foreign nation will want to buy the trillions of dollars in US bonds needed to pay for the national debt. But surely that could ever happen to the "land of the free and home of the brave.'''
