After the American Century
[updated Oct. 7, to include information on stocks, declining foreign student enrollments, and the government shutdown]
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 $128.70. An increase of more than 25%!
Furthermore, consider this along with other trends under the Trump Administration
1. The dollar has fallen 15% against the Euro 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. 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. Add to this a sharp decline in the number of foreign students, a loss of more than 75,000 according to the New York Times. Some have been frightened away by the arrest and persecution of many foreign students in the spring 2025, others have been put off by a slow down in visa processing.
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%. At the same time, the goveernment shutdown means that no data will be available on the levels of unemployment or inflation, which means the Federal Reserve decision will be based on guesswork.
7. Stock markets in other countries have had a better 2025 than the US. According to Fidelity, in 2024, US equities were up 25%, well ahead of Europe at just 2.4%. But as of the end of June in 2025, the US equities were sharply up and down, with a half year result of 6.7%. In contrast, Europe, at 9.7%, is ahead of everyone else, including Asia. Factor in the declining value of the dollar, and foreign investment in US equities during 2025 was a losing proposition. Assuming one invested $100 at the start of the year, it grew to $106.70. But the value of $100 fell by more than $6.70. Buying US government debt was an even worse investment.
8. The government has been closed down now for a week, with no end in sight. There is no budget, and the Republicans have refused even to hold sessions in the House of Representatives. They have abdicated all responsibility! With most federal employees sent home without being paid and many vital institutions closed down, the economy will contract a little. J. P Morgan estimates that "“Each week, a shutdown subtracts about 0.1% of annualized GDP growth." Now entering the second week with no end in sight, it seems GPD will contract a minimum of 0.2% on this factor alone
In short, Trump's policies have weakened the dollar, stalled the labor market, driven away tourists and foreign students, halted energy development, relied on deficit spending, pushed up inflation, and brought the government to a standstill. 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 already, and it is likely to get worse because thousands fewer foreign graduate students enrolling due to Trump policies. In the past, many engineering and science graduates have remained in the US after graduation. So many, in fact, that four out of ten employed in these fields were born abroad.
Annual GDP Growth per capita, China vs The United States, 1980-2024
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 have 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, an economy 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. A new order is already emerging, and it 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 no meaningful support for Europe and going it alone, then Trump has chosen decline. By 2028 the nation may find itself mired in debt, plagued by stagflation, and distructed by former allies. The dollar might even 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 runaway national debt. But surely, you wonder, could that ever happen to the "land of the free and home of the brave.'' We shall see.
