Opinion | How Trump is hastening the end of American hegemony
Although the US economy is growing and inflation remains low, the uncertainty sowed by the president’s policies will have sobering long-term consequences
SCMP 21 Dec 2025
It has become almost routine to end each year with talk of the “polycrisis”, and to acknowledge the difficulty of anticipating a future that seems pregnant with the risk of new wars, pandemics, financial crises and climate-driven devastation.
Yet 2025 added a uniquely toxic ingredient to this mix: the return to the White House of US President Donald Trump, whose erratic, unlawful policies have already upended the post-war era of globalisation. Faced with so much uncertainty, can we say anything with confidence about where the United States and global economies are heading?
One thing we can say is that the US economy is not doing as well as Trump would have us believe. Job creation is almost at a standstill, which is no surprise, given that Trump has been sowing uncertainty and weakening the economy in unprecedented ways.
On the supply side, his most pernicious policy has been the frontal attack on immigrant workers. The administration’s mass deportations – carried out by masked Immigration and Customs Enforcement (ICE) agents snatching people off the streets – have killed off the most important source of additional labour supply at a time when the domestic labour force is declining.
Not only do Americans depend on immigrants in industries ranging from agriculture and construction to hospitality and care work, but these immigrants are also a source of demand. Yet now, many Americans of colour, even US citizens, are afraid to leave their homes, lest they be brutalised by ICE.
The negative effects of Trump’s indiscriminate cuts to government have also spread throughout the economy. There are multiplier effects to government contractions, just as there are to expansions, and in the current context, the costs have been amplified by the erratic nature of the process. The administration’s incompetent, blunderbuss approach has sown even deeper uncertainty and induced precautionary behaviour on the part of businesses and consumers.
Trump’s tariffs – whether levied or threatened – and other on-again, off-again policies should be recognised for what they are: a major supply-side shock to the economy. They have pointlessly added uncertainty to the costs of production and to the prices consumers pay when they shop, making it impossible for businesses to engage in any serious long-term planning.
And these are just short-term effects. The US economy’s long-term prospects look even bleaker, all thanks to Trump. After all, America’s comparative advantage has always rested on technology and unfettered higher education. By attacking research and trying to starve universities of federal funds unless they kowtow to his demands, Trump is shooting America’s economy in the foot.
Why, then, is gross domestic product still growing, with the stock market reaching new highs and inflation remaining below the levels critics had warned about? There are multiple explanations for this apparent strength. With respect to the stock market, the boom is actually very narrow, confined largely to a handful of tech giants: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
And yet, these companies’ valuations reflect expectations of long-term monopoly profits that may never materialise. (This is especially true for Tesla, owing to Elon Musk’s embrace of Trump, which has alienated many consumers.)
The massive capital expenditures on AI have been offsetting the weakness in the rest of the economy. But like all such bubbles, this one will eventually burst. Precisely when is anyone’s guess, but with so much of the economy riding on one sector, the collapse will inevitably be felt widely.
Worse, if AI succeeds in the way its advocates anticipate, it would be a harbinger of other serious problems, because then the technology would probably displace many workers and cause even greater inequality. Add the downsizing of government demanded by Silicon Valley’s ersatz tech-libertarians, and one can only wonder what would sustain the US economy in the years ahead.
As for inflation, there is a simple explanation for why it has not risen sharply yet. For starters, Trump’s tariffs generally have not been as high as he originally threatened (though the 50 per cent punitive tariff imposed on India, a country the US had treated as a friend before Trump’s return, is shockingly brutal).
Moreover, the effects of tariffs are often felt with long lags. Many firms refrained from raising prices until they saw what their competitors would do, and some won’t raise prices until the inventories of the goods they purchased before the tariffs are exhausted. But if Trump’s threatened tariffs against China were ever actually imposed, that would be a different matter. In fact, the unravelling of supply chains could unleash price increases greater than the tariffs themselves.
US-China tariff war in Trump 2.0
The short term will not be easy. But in the new global economy that emerges over the longer term, America will have lost its hegemony. That is where we are heading as we head into the second year of living at the mercy of an unhinged president’s whims.
Perhaps the defining moment will come with the 2026 US midterm elections in November. Elections that are not as free and fair as one would expect for a genuine democracy (as many fear) would mark a grim turning point.
But if the growing dissatisfaction with Trump’s economic management and the country’s slide towards authoritarianism results in the Democrats recapturing at least one house of Congress, that will be a turning point in the other direction. Either way, the US and the world would still face at least another two years of economic incompetence and uncertainty.
Copyright: Project Syndicate