Trump Has Weakened the American Economy

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.'''

BRIC Nations Driving Global Warming

After the American Century

I recently spent two days at the University of Michigan, attending a conference dealing with sustainability and the US / China relationship. My brief was to deliver a plenary lecture on the history of US energy use, and what that history suggests about the future.

The background for this discussion is the major shift in the sources of pollution that has taken place during the previous five years. In c. 2006 the United States released more CO2 into the atmosphere than any other country. Since then the US has reduced its carbon footprint, and at the same time its total energy use has stopped growing. In contrast, China's economy has been growing at a rate of 9 or 10% every year, and its energy use has shot well beyond the US level. In fact, China alone released more CO2 last year than the United States, Germany, and the UK combined.

When one adds the CO2 from Brazil, Russia, and India, the other "BRIC" nations, the pollution balance shifts even more dramatically. These four emerging economies taken together are demanding more and more energy and they are satisfying this demand mostly through the older polluting technologies. Alternative energies receive lip service. Indeed, the many Chinese delegates to the meeting in Michigan kept repeating that the pollution was created to manufacture things for the West, and therefore the CO2 releases should not be counted against China. 

This is a curious argument. Chinese factories choose to be highly polluting of their own water and soil in order to keep prices down, a subject that was dealt with at the conference. These factories also choose to pay workers poorly in order to keep prices down, a topic that however was scarcely mentioned. Exploiting their own land, air, people, and energy resources in a short-sighted manner, the Chinese are making  a good deal of money. But the CO2 somehow, they think, is not their responsibility.

In contrast, almost all the large western economies have managed to reduce their CO2 levels in the last decade. One must admit that they start from an entirely different position. Per capita, Americans, Germans, and Brits all use far more energy than the average Chinese and enormously more than the average Indian. Starting from a position of excessive energy use, the West can cut back largely by adopting new technologies that are more efficient and less polluting. 

The overall trend is worrisome. The BRIC national economies are growing rapidly, and their CO2 emissions are keeping pace. This is not a sustainable situation. Nor is it a necessary situation.

I explained why in my lecture. Drawing on my  Consuming Power, I briefly summarized the previous American energy regimes from colonial times to the present: muscle power, water power, steam power, electrical power, gas and oil, and the never entirely realized nuclear regime. 

I then drew several conclusions. 

First, that the US has had little or no historical experience with shortages. Shifts in energy use were driven by consumer demands for more rather than the need to replace disappearing sources. 

Second, that since c. 1820 there have been new energy regimes roughly every 40 years. This strongly suggests that the shift to alternative energies will also take four decades, and that it will not entirely replace but rather supplement previous energy sources. 

Third, statistics show that since c. 1940 the largest growth in energy use in the US has been in the consumer sector. Industry has been much better at curbing its appetites. The good news is, that, based on studies of best practices - i.e. using existing technologies - the US could cut its total energy use by 50%. This would not entail any hardships or major changes in lifestyle. Rather, this would mean that per capita US energy use fell to the level of Germany or Denmark. The existing technologies include improved housing insulation and heat exchangers, already in use in Germany, that come close to eliminating the need for most domestic heating or cooling. Heat pumps, passive solar, solar panels, geothermal, burning waste, and wind power together provide a good mix of alternatives. Utilized together with pumped storage of hydro power, they eliminate the bogus argument raised by the oil, gas, and coal companies, who claim that alternative energies cannot provide energy around the clock, because the sun does not always shine and the wind does not always blow.

Fourth, half of the reduced US energy demand could be met though a mix of alternative energies, including far more than wind and solar power. Again, new technologies are not necessary. What we already have is sufficient to achieve this result. But note that the cost of solar power has been steadily falling, at a rate that economist Paul Krugman estimates to be 7% every year.

In other words, rather than set a goal of unchanged total use, of which 25% is to be alternative energy, I firmly believe that the US goal should be to reduce its energy consumption by half and satisfy the  remaining energy demand by using alternative energies. Moreover, the BRIC nations could do the same thing. Rather than adopt old-fashioned technologies, such as coal-fired electrical plants, they could move directly toward the sustainable goal. Their models should be Denmark and Germany. They should not measure themselves against the US, whose energy use is indefensible and unsustainable. Indeed, there is some evidence that the Chinese have begun to understand this more quickly than the US itself. Certainly China has moved to be a global leader in solar energy.

The fundamental problem of excessive energy use is not technological, but social and political.

Copenhagen's Chinese Christmas Present

After the American Century Posting 204


As more insider accounts of the Copenhagen Summit come in, the Chinese emerge as the chief villains, a strong word, but not strong enough in this case. A piece in The Guardian reveals how the Chinese sabotaged attempts at a final consensus.

In the future, clearly, one cannot hold talks and hope that all the great powers agree. Giving every important power a veto right or the chance to undermine an agreement is just silly. Instead, the world will have to find another way to work toward relieving global warming. The summit model is not working, and perhaps can never work.

Here are some interlinked suggestions:

1. Create a system that ranks countries into four groups, depending on to what degree they are working toward global warming.

2. Tell consumers worldwide where each nation ranks, so that they can choose intelligently and buy products based on how much a nation is in compliance with UN goals. Under such a system, China would get a D rating, of course, and the US would perhaps as well. I would hope that consumers would be more willing to buy from nations that are trying to solve the problem of global warming rather from those that are making matters worse.

3. Allow companies to be rated as well, so that an environmentally responsible company can get a higher ranking than the nation where they are located.

4. Cities of more than 300,000 people would also be able to apply for and achieve ratings, so that if Seattle or Munich or Oslo or Rio wanted to they could achieve a rating higher than that within their home nation.

5. Give aid for conversion to clean energy technologies only to those Third World Nations where the military budget is less than 2% of GNP. It is absurd to pour money into a nation that is investing in arms and airplanes rather than solar panels, wind mills, and the like. Many poor nations are not focusing their own resources on the problem, and if this is the case, why should anyone else?

6. Give annual awards to successful projects (actually completed, not just proposals) that both improve the quality of life and reduce global warming. Make the awards as glamorous as the Nobel Prizes or the Academy Awards. Governments whose nations are in the A category would also be put in the limelight at these events and part of the ceremony would be to welcome any new members of the "A" club and to congratulate those who had moved up a category. Nations in the D category would not be allowed to have an official speaker or presenter at the awards, but they would be welcome to attend.

7. Instead of the trading system that most nations now have or want, where all free trade is considered to be a good thing, no matter what is traded, nations would be encouraged to revise their import taxes or other tax codes to favor products whose production and use had the least environmental impact. This sort of taxation would recognize that it costs more to manufacture in an environmentally responsible way. I do not suggest that the taxes be punitive, but rather that they be a restructuring of current VAT, and that they be applied to c. 100 goods that are particularly important in this area, notably automobiles, air conditioners, stoves, televisions, and so forth.

As these proposals suggest, we can no longer wait around for the nations of this earth to become unanimous. China blocked the deal this time, but it could be someone else the next time. Instead, turn loose the power of consumers and introduce something that the Chinese can understand: SHAME. They may think they have emerged as a great power, but the Chinese have lost face. Their government has not behaved in an honorable way.

The Weakening Dollar

After the American Century

For much of the twentieth century the American dollar was the benchmark currency. Whenever a crisis arose, world investors moved money into the dollar. For decades, the dollar was a good investment for anyone living in an inflation-prone economy, like those in Latin America or Africa. Likewise, because the dollar was stable, it was the preferred currency in the oil market.

The apparent rock-like stability of the dollar began to weaken already in the 1970s, when President Richard Nixon took the dollar off the gold standard. Until then, at least for very large investors, one could redeem dollars in gold. After then, the dollar was a little less rock-like, but on the whole was the preferred currency in any crisis. One could see this again in the wake of the financial collapse during the fall of 2008. Even though American banks were largely responsible for the sudden downturn, many people around the world instinctively moved money into the dollar.

Those days are over, and probably over forever. Rationally speaking, the dollar is not a smart investment at the moment. It has been declining in value for months, and has reached its lowest point in 14 years against the Japanese yen. The current interest rate on dollar savings accounts is also very low, so that even assuming the dollar's decline ends soon, nevertheless, the rate of return is better in the Euro zone.

The Chinese, meanwhile, are keeping their currency artificially weak, as a way to stimulate exports and continue building up already massive foreign reserves. In effect, the United States is letting its currency fall in value for the same reason, to stimulate exports and dampen the desire for imports. But China is way ahead in this race to the bottom, while Japan and Europe are both being hurt. Because China and to a lesser extent the United States have weak currencies, both Japanese and European goods cost more - forcing some factories to close or to move overseas where labor costs are lower. Japan and Europe have higher unemployment and fewer exports because their currency is too strong.

This is a dangerous game for all concerned. As President Obama pointedly told the Chinese leadership on his state visit, Asian economies need to play by the same rules as the rest of the world. Asian consumers, particularly in China, need to buy more, and their currencies should be worth more, to bring the world's economic system into balance.

For the United States, the danger is that it will soon be forced to increase interest rates in order to fund its growing national debt. This will increase the dollar's value, but it will also slow or halt economic recovery. This in turn will reduce American demand for foreign goods, as the economy stagnates.

Unfortunately, precisely this scenario (in which the US weakens) might be what China wants. For if it comes to pass, then China's massive holdings in American dollars will increase in value, while the US itself will grow slowly or not at all. The Chinese economy might then outpace US growth by 5% or more per year, until, in perhaps a decade, perhaps less, the US currency would enter a more definitive decline.

I hope this scenario is wrong. Should it prove at all accurate, then the dollar's reign as the world's reserve currency might not last longer than about 2020. Clearly this is not a happy thought for anyone with a pension or investments in the United States. Just as importantly, the relative decline of the US economy vis-a-vis the rest of the world will soon necessitate a major realignment that takes account of new players: Brazil, India, Indonesia, and most of all, China.

The Great Firewall of China

After the American Century

The Chinese government has ordered all computer makers to pre-install a censorship program on new computers. (See New York Times for details) This is to begin in less than two weeks, on July 1. Will the big computer firms stand up to the Chinese on this? Hewlett Packard and Dell have asked the government to reconsider, and clearly the world's computer makers are not comfortable with the plan. But will their belief in democratic principles of free speech be strong enough to withstand the fear of profit losses?

China already has a bad track record on censorship, and makes great efforts to prevent the flow of information or dissent on certain issues. James Fallows has written a penetrating article on this, based on his experiences of (trying to) use the Internet inside China during the Olympics last summer. But evidently the Chinese government feels that blocking many sites and trying to control the flow of information through monitoring is not enough. It wants to have direct control over every single PC in the country. It wants an impenetrable Great Firewall.

The importance of the Internet in promoting freedom of speech is obvious in the present crisis in Iran. There, too, the central government is trying hard to block all communications with the outside world. The Iranian government already controls and censors the newspapers, radio, and television. If it had a Chinese style program installed on every PC in the country, then control might be absolute.

At moments like this, one can only hope that programmers who believe in free speech will develop ways to disconnect or disable the censorship software. Fortunately, there are quite a few computer people who want cyberspace to be free of censorship, notably those who set up the Electronic Frontier Foundation.

The naked Chinese challenge to the computer industry should worry anyone who believes in freedom of speech and democracy. It is more than dismal to contemplate a major nuclear power that crushes Tibet and thwarts all criticism. The twenty-first century may well turn out to be "the Asian century." Will that mean a century of greater censorship, more dictatorship, and trumped up xenophobia? Iran may provide part of the answer in the coming weeks, but so too will China, if it succeeds in stifling the Internet.

In the next two weeks, will any governments speak out against the Chinese plan? Or are markets more important than principles? Centuries ago China spent vast resources building a Great Wall to keep out the barbarians. It ultimately failed to do this, and one can hope the same will be true of the Great Firewall.

If you want to find out if any site is censored out of existence in China, check out greatfirewallofchina.org