Will weaknesses in the US economy resist Trump’s strategy?

The strengths of the Amer­ic­an eco­nomy are well known and widely dis­cussed, par­tic­u­larly when draw­ing atten­tion to Europe’s short­com­ings. Per cap­ita pro­ductiv­ity increased by 45% in the United States from 2002 to the end of 2024, and by only 10% in Europe, which explains the dif­fer­ence in growth over the same peri­od in terms of Gross Domest­ic Product (GDP) in volume: 65% in the United States and 30% in Europe (in the euro zone). This gap is linked to the sig­ni­fic­ant Research and Devel­op­ment effort in the United States (total R&D reaches 3.6% of GDP com­pared to 2.2% of GDP in the euro zone), the avail­ab­il­ity of sig­ni­fic­ant funds to fin­ance risky invest­ments (in 2024, funds raised in ven­ture cap­it­al reached $250bn in the United States, com­pared with $110bn in China and $22bn in Europe), and the high level of invest­ment in new tech­no­lo­gies (IT, soft­ware, arti­fi­cial intel­li­gence, etc.), which is close to 4% of GDP in the United States com­pared with 2.3% of GDP in Europe.

But the numer­ous weak­nesses of the US eco­nomy should not be over­looked. Firstly, the labour force is poorly qual­i­fied, as is clearly shown by the res­ults of the OECD’s PIAAC sur­vey on adult skills (the over­all PIAAC score for the United States is 251, com­pared with 267 for Ger­many, 276 for the Neth­er­lands and 285 for Japan). The low level of skills among Amer­ic­ans requires sig­ni­fic­ant immig­ra­tion (14.5% of Amer­ic­ans were born abroad at the end of 2024, com­pared to 11.5% in 2007 and 13% in 2018), in par­tic­u­lar because the pro­por­tion of highly qual­i­fied immig­rants is high (25.8% of immig­rants in 2023 have a high­er edu­ca­tion degree – Mas­ter­’s or PhD – com­pared to 14.8% of the total population).

What’s more, the United States is on a path of con­stant dein­dus­tri­al­isa­tion. The man­u­fac­tur­ing sec­tor’s share of GDP fell from 12.5% in 2007 to 10.3% at the end of 2024; the goods trade bal­ance is in defi­cit by $100bn dol­lars per month. We will use these devel­op­ments later to char­ac­ter­ise the com­par­at­ive advant­ages of the United States.

The con­stant trade defi­cit has led to the accu­mu­la­tion of a very large net for­eign debt, which reached 80% of GDP in 2024. Fur­ther­more, the employ­ment rate for 15–64 year olds is low in the United States (72%) com­pared to Ger­many (78%), Japan (80%) and Sweden (77%). This dis­crep­ancy is the res­ult of the health prob­lems faced by many Amer­ic­ans: 14% of Amer­ic­an adults are unfit for work and 25% of Amer­ic­ans have not seen a doc­tor for over a year due to the high cost of healthcare.

Finally, the infra­struc­ture (trans­port, elec­tron­ic, water sup­ply, school build­ings) is in poor con­di­tion in the United States. For example, 45,000 bridges and 20% of roads are badly dam­aged and 17% of Amer­ic­ans do not have access to the Internet.

We have just seen the list of US eco­nom­ic strengths (high level of research and devel­op­ment and invest­ment in new tech­no­lo­gies) and weak­nesses (dein­dus­tri­al­isa­tion, skills short­ages, health prob­lems and low employ­ment rate, as well as poor infra­struc­ture). In view of this list, it is nor­mal to con­clude that the United States has com­par­at­ive advant­ages in the pro­duc­tion of soph­ist­ic­ated ser­vices (tech­no­lo­gic­al ser­vices, inform­a­tion ser­vices, fin­an­cial ser­vices), but not in the pro­duc­tion of man­u­fac­tured goods.

Indeed, the low level of skills among the work­ing pop­u­la­tion, the low weight of the man­u­fac­tur­ing industry in the eco­nomy and the trade defi­cit for goods reveal that the United States does not have the labour force or the infra­struc­ture neces­sary for the devel­op­ment of industry. The con­trast is clear between the trade defi­cit for man­u­fac­tured goods ($1.6tn per year) and the trade sur­plus for ser­vices ($300bn per year). We must there­fore con­sider the optim­al strategy for a coun­try that has com­par­at­ive advant­ages – that has the neces­sary factors of pro­duc­tion – for the pro­duc­tion of soph­ist­ic­ated ser­vices and not for the pro­duc­tion of man­u­fac­tured goods.

It is clear that, giv­en the nature of the United States’ com­par­at­ive advant­ages, a pro­tec­tion­ist policy is bad for the coun­try. Tax­ing imports of man­u­fac­tured goods from the rest of the World will not res­ult in a sig­ni­fic­ant relo­ca­tion of their pro­duc­tion, as the United States has no com­par­at­ive advant­age in the pro­duc­tion of these goods. It will simply push up the prices of imports and the domest­ic prices of man­u­fac­tured goods. Pro­tec­tion­ism will there­fore lead to a loss of pur­chas­ing power for Amer­ic­an con­sumers, and to very little sub­sti­tu­tion of Amer­ic­an domest­ic pro­duc­tion for imports.

It is clear that a pro­tec­tion­ist policy, giv­en the nature of the United States’ com­par­at­ive advant­ages, is an inef­fect­ive policy for the coun­try. Tax­ing imports of man­u­fac­tured goods from the Rest of the World, since the United States has no com­par­at­ive advant­age in the pro­duc­tion of these goods, will not res­ult in a sig­ni­fic­ant relo­ca­tion of their pro­duc­tion and will simply raise import prices and domest­ic prices of man­u­fac­tured goods. Pro­tec­tion­ism will there­fore lead to a loss of pur­chas­ing power for Amer­ic­an con­sumers, and to very little sub­sti­tu­tion of Amer­ic­an domest­ic pro­duc­tion for imports.

An effect­ive strategy for the United States would there­fore be to main­tain free trade in goods and ser­vices, which allows goods to be impor­ted from the rest of the world without these imports being made more expens­ive by cus­toms duties, and to avoid trade retali­ation meas­ures by oth­er coun­tries, which hamper exports of soph­ist­ic­ated ser­vices (tech­no­lo­gic­al, fin­an­cial, etc.) from the United States.

Fur­ther­more, this strategy includes an eco­nom­ic policy aimed at devel­op­ing the United States’ lead over its com­pet­it­ors in fin­ance and inform­a­tion and com­mu­nic­a­tion tech­no­lo­gies. This strategy involves pub­lic aid for the devel­op­ment of arti­fi­cial intel­li­gence, or for devel­op­ing quantum com­puters. This pub­lic aid was intro­duced by Don­ald Trump, but in a con­text of trade war, which will lead oth­er coun­tries to restrict their imports of tech­no­lo­gic­al products from the United States. This strategy (free trade and sup­port for US tech­no­lo­gic­al advance­ment) would con­tin­ue to attract cap­it­al and skilled labour to the United States; the res­ult­ing cap­it­al inflows would eas­ily fin­ance the goods trade defi­cit, while the ser­vices trade sur­plus would con­tin­ue to grow.

An eco­nom­ic strategy that does not cor­res­pond to a coun­try’s com­par­at­ive advant­ages is inev­it­ably doomed to fail­ure. This is the case with Don­ald Trump’s pro­tec­tion­ist strategy, which will not lead to sig­ni­fic­ant indus­tri­al relo­ca­tions to the United States, giv­en the state of the skills of the labour force and the deteri­or­a­tion of infra­struc­ture. Europe is wor­ried about a relo­ca­tion move­ment towards the United States, but in real­ity, this is not hap­pen­ing (the man­u­fac­tur­ing industry’s share of the US GDP con­tin­ues to decrease) and will not hap­pen. Indeed, the real and legit­im­ate fear for Europe is the US dom­in­a­tion of tech­no­lo­gic­al and fin­an­cial services.