Will weaknesses in the US economy resist Trump’s strategy ?
- Per capita productivity increased by 45% in the United States between 2002 and the end of 2024, compared with only 10% in Europe.
- However, the US economy has weaknesses, such as a low-skilled workforce and a low level of skills among Americans themselves.
- The US has comparative advantages in the production of sophisticated services (technology, information, finance), but not in manufactured goods.
- With the US's comparative advantages, protectionism is ineffective for the country, unlike a policy of free trade for goods and services.
- The US must implement an economic strategy aimed at strengthening its competitive edge in the finance and information and communication technology sectors.
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.
An economic assessment that needs to be qualified
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.
What comparative advantages and, consequently, what strategy for the United States ?
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.
Free trade as an effective strategy for the United States
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.
