Since Donald Trump’s “Liberation Day” on April 2, when he announced sweeping trade tariffs on friend and foe alike, the conventional wisdom about the US economy’s short-term and medium- to long-term prospects has been pessimistic. Higher tariffs will cause a US and global recession; US exceptionalism is over; America’s fiscal and current-account deficits will become unsustainable; the US dollar’s status as the main global reserve currency will soon end; and the dollar will sharply weaken over time.
Certainly, some of the policies that Trump has announced warrant such pessimism. Tariffs, protectionism, and trade wars are likely to be stagflationary (causing higher inflation and lower growth), as are draconian restrictions on migration, mass deportations of undocumented workers, large unfunded fiscal deficits, and efforts to interfere with the US Federal Reserve’s independence. Equally, the US economy would not be well served by a Mar-a-Lago Accord to weaken the dollar, further damage to the rule of law at home and abroad, or tighter restrictions on foreign talent – scientists and students – coming to the United States.
Nonetheless, I have maintained (since last winter) that the US economy will be fine – not because of Trump’s policies, but in spite of them. For starters, I expected a combination of market discipline, Trump’s more sensible advisers, and Fed independence to prevail, and that is what has happened. Trump has consistently chickened out and pursued trade deals, rather than following through with his Liberation Day tariffs.
Trump’s default may be “TALO” (Trump Always Lashes Out), but bond vigilantes and financial markets have pushed him into TACO (Trump Always Chickens Out) mode. As his most damaging economic policies take a milder form, the US economy will still endure some pain, but the likely end-of-year scenario is a growth recession (meaning below-potential growth), not an outright recession (typically defined as two consecutive quarters of negative growth).
Second, because the positive effects of technology will always trump the negative effects of tariffs, the era of US economic exceptionalism is not over. The US is ahead of everyone – including China – in most of the revolutionary innovations that will define the future. Accordingly, its potential annual growth is likely to increase from 2% to 4% by the end of the decade, before rising much higher in the 2030s. Suppose that new technologies increase its potential growth by 200 basis points while trade and other bad policies reduce it by 50 bps; America would remain exceptional. It is America’s uniquely dynamic private sector, not Trump’s policies, that will determine the future growth outlook.
Third, if potential growth does accelerate toward 4% over time, US public and external debts as a share of GDP will prove sustainable, stabilising and then falling over time (unless there is even greater fiscal recklessness). While the Congressional Budget Office projects a rising public debt-to-GDP ratio, that is because it assumes that US potential growth will peak at 1.8%.
Fourth, as long as American economic exceptionalism obtains, the “exorbitant privilege” conferred by the dollar’s global primacy is unlikely to erode. Despite higher tariffs, US external deficits will probably remain high, since investment as a share of GDP will rise on the back of a secular tech-driven boom, while the savings rate remains relatively stable. The resulting increase in the current-account deficit will be financed by equity inflows (both portfolio investment and foreign direct investment).
In this context, the dollar’s role as global reserve currency is unlikely to be significantly challenged, even if there is some modest diversification out of dollar-denominated assets. Likewise, these structural inflows will limit downside exchange-rate risks, and they could even strengthen the dollar over the medium term.
In short, the US is likely to do well over the rest of this decade, not thanks to Trump but in spite of him. There is no question that many of his policies are potentially stagflationary. But the US happens to be at the center of some of the most important technological innovations in human history. These will deliver a large positive aggregate supply shock that will increase growth and reduce inflation over time. This effect should be an order of magnitude larger than the damage that stagflationary policies can induce.
Of course, one should not be complacent about damaging policies; their negative impact could be serious. But as long as markets and bond vigilantes do their job, Trump’s worst impulses will be constrained.
*Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business, is Chief Economist at Atlas Capital Team and the author of Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them (Little, Brown and Company, 2022). Copyright: Project Syndicate, 2025, published here with permission.
12 Comments
Interesting view from Roubini and counter to what many expect to happen in the US. He's correct to highlight the US tech sector as a dominant economic force and the US stock market does appear to be completely indestructible.
So he could be correct - the US at one level may continue to have elevated asset values and and an in demand currency - but I think for most Americans life is going to get harder - higher unemployment, higher inflation and far fewer low cost government services. Inequality will continue to climb dramatically.
I think he's got rose tinted glasses on. What part of the American tech sector is leading the world? Not in chips; not in AI; not in mass transport; not in EV; not in the arts/entertainment and not in social media as far as I can see. They have some tech giants, like FB and X but they are not the forefront of innovation any longer. I assume they are losing subscribers but we won't get info into those numbers - certainly TikTok was the comparative innovator in SM more lately.
This is an opinion piece. The USA population is about 350 million out of > 8.2 billion humans, so 23 times as much human intelligence is outside the USA than in it.
Not every human possesses the same intelligence ability and knowledge.
Or an ability to capitalize it.
What on Earth is Mr Roubini smoking?
There are more contradictions here than I could poke a stick at - even his book, "Megathreats', warns of dystopian risks, yet this article is extraordinarily optimistic about US exceptionalism.
I will cut to the chase, right now, IMO, this is nothing more than delusional New York Ivy League spin.
More Holes than Swiss Cheese
His central evidence appears to be America's alleged lead in "revolutionary innovations" over China and others, and where in god's name does the 4% growth projection come from?
US productivity trends have been dismal for decades. His supply-shock argument overlooks how tech monopolies will suppress productivity. And the TACO premise is shaky at best - what if Trump doesn't back down next time? The 2025 Project blueprint suggests more radical trade agendas.
How exactly would AI add 2% to GDP? Roubini dismisses policy damage far too easily. Neither is there any mention of the fact that every time Trump opens his gob, he accelerates de-dollarisation, and not just in BRICS, but also with traditional allies as well.
The Dubious Claim: "US Leads in Revolutionary Innovations"
Roubini asserts that the US is "ahead of everyone – including China" in future-defining innovations, but this overlooks key realities.
China dominates 5G infrastructure (Huawei), quantum computing, EV/battery production (BYD, CATL), and AI implementation (e.g., surveillance, Fintech), and files more patents annually than the US since 2019 (WIPO data).
China has dominated global patent filings since 2019, with its lead is widening dramatically - they now outnumber the US by 310% and their AI patents amount to 43% of global AI patents.
The US has severe vulnerabilities in its reliance on Asian semiconductor manufacturing (TSMC, Samsung) and rare earth dependencies.
Highly Questionable Assumptions in Roubini’s Thesis
(i) The "TALO vs. TACO" (Market Discipline) Argument:
Roubini claims markets/bond vigilantes force Trump into "TACO" (retreat). But this assumes institutions such as the Fed and the courts can fully constrain him.
Reality check - Trump’s second-term agenda ("Agenda 47") includes replacing Fed officials, mass deportations, and 10% across-the-board tariffs. Market pressure may fail against authoritarian policies.
4% Growth via Technology - Roubini suggests tech could boost US growth to 4% by 2030, offsetting bad policies. What evidence is there that tech can achieve that level of growth when US productivity growth has averaged ~1.2% since 2010? If anything, Trump's policies will nobble growth even further.
US tech dominance relies on global talent and supply chains. Restrictions on immigration/trade could cripple innovation, and there is also a very real stagflation risk -Tariffs and immigration restrictions reduce supply, countering tech-driven supply boosts.
Debt Sustainability via Growth...
He assumes that 4% growth resolves debt/GDP issues. But the CBO projects 1.8% growth and rising debt (145% of GDP by 2054). Even with higher growth, unfunded tax cuts plus protectionism are more likely to worsen deficits.
Dedollarisation and exceptionalism - the negative effects of these trends are both overlooked
Roubini dismisses de-dollarisation, but BRICS+ nations are actively diversifying their reserves and trade habits. The USD’s reserve share fell from 73% (2001) to 58% (2023) (IMF data).
He ignores geopolitical realities on multiple levels, including the fact that US tech dominance would rely on global talent and supply chains, which Trump has taken a wrecking ball approach to. Restrictions on immigration/trade could cripple innovation.
IMO, his core error is overconfidence in US innovation supremacy and underestimating policy risks. Claiming US tech will single-handedly drive 4% growth ignores a host of structural headwinds. The assertion that the US is "ahead of everyone" in innovation is not empirically defensible - China excels in most of the critical areas.
Roubini ignores the fact that innovation thrives on openness - Trumpian policies (migration bans, tariffs, tech decoupling) will sabotage the very advantage he celebrates.
WHAT SENSIBLE ADVISORS - WHAT FED INDEPENDENCE?
"For starters, I expected a combination of market discipline, Trump’s more sensible advisers, and Fed independence to prevail, and that is what has happened."
Trump’s more sensible advisers - for crying out loud, does he have a single one that is not helping him drive the US, and much of the global economy, into a severe global depression?
"Fed independence to prevail"? - REALLY - the Fed is 100% owned by a cartel of private banks - the ownership alone makes this claim farcical.
Independent from Govt perhaps, but most certainly not independent in policy - their policy revolves around favouring the rentier' financial economy, not the productive sector and the working class.
This is a large part of the reason why recent studies show that China's PGDP* (Productive GDP) is 300% larger than that of the US, and that India has already overtaken the US, to relagate them to position number 3 in terms of PGDP.
[*PGDP eliminates from the traditional GDP and PPP-GDP the figures that are neither goods nor services and that simply bolster the total figure to give a country the appearance of being more productive than it is.]
The traditional GDP figures obfuscate a country's ability to service external debt. PGDP gives a much more accurate gauge of the health of the economic activity when you look at its PGDP:Debt ratio. It gives a much clearer measure of a country's solvency.
Mr Roubini and the Western status quo cannot afford this conversation
(i) Simple debt maths exposes an inevitable collapse. The US needs $800B+ annually just to service existing external debt - with PGDP growth at ~1%, this requires perpetual debt expansion, and currently there is ~$1T deficit every 100 days - NO MENTION OF THIS from Roubani.
(ii) They are progressively losing their dollar hegemony just from a petrodollar recycling perspective alone. The petrodollar game went up in smoke when OPEC disintegrated. BRICS+ countries now hold 79% of global oil reserves, and 68% of global refining is now BRICS+ controlled.
(iii) Neither can they continue to suppress the value of alternative reserve assets such as gold and silver to try to hide the plummeting purchasing power of fiat currencies.
(iv) In the US, there has been a wealth transfer of at least $47 trillion from the bottom 90% cohort to the top 1% just since 1990 alone.
(v) Banking Cartel Control - 6 US banks hold assets equal to 220% of US PGDP - ($11T vs) $5.2T
(vi) Revolving Doors - 70% of senior Treasury/Fed officials take Wall Street jobs post-government
The Ideological Nuclear Option
Of course, admitting that China's public banking model is successful would dismantle
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The "free markets = efficiency" dogma - "free markets" are never free anyway.
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This would also destroy the myth of private money creation superiority and the Neoliberal hymm book of austerity and privatisation.
The Economic War Is Already Underway
BRICS+ gold-backed trade - 35% of global trade now settled outside USD.
Trump and other de-dollarisation accelerants, including the US seizure of Russia's $300B reserves, ended the US "safe asset" illusion forever.
The West chose to weaponise SWIFT sanctions, which have forced alternative payment systems such as CIPS and SPFS adoption out of necessity.
The Path Forward - What The West and Mr Roubani Fear The Most
China is already operationalising the PGDP focus through the global BRI (Belt and Road Initiative) infrastructural investment, which will become a permanent PGDP multiplier.
They are now gold-backing their yuan in trade deals with Saudi Arabia, and the entire focus in China is on productive credit allocation, as opposed to casino capitalism.
This is the Global South alignment - 85-90% of humanity is now prioritising real output over financial extraction, and Trump's Mafia Don-style shakedown tactics have been their greatest ally in accelerating this alignment.
Conclusion
The moment Western pension funds start demanding Debt/PGDP ratios, instead of Debt/GDP is when the curtain falls. The current system survives only through a combination of obfuscation, coercion, and institutional capture.
We are witnessing the greatest shift in economic power since Bretton Woods. The establishment isn't just ignoring PGDP, they're actively building moats against it while they desperately try to control the narrative. Physics always trumps fiction. Real productive capacity will determine the next world order.
The work that I do is what the establishment fears most, because it replaces their financial fiction with material truth. When the dam breaks, and it will break because it's a mathematical certainty, it will be because truthseekers made "PGDP" the password to the new world.
The new global financial structure is being built right at this moment by those who measure real things.
Regards to all
Col
PS - I am appalled by the bias of this article and would hope that it was only aired here as an illustration of how deluded Ivy League academics can be. It's almost as if their funding was dependent on narratives of this nature.
Hi Colin, how does NZ take advantage of our position, apart from production of food / agri products?
My 2-cent's worth - start by transforming our banking model into a public utility, IT GUY.
However, a political path to fundamental reform of this scale is practically nonexistent, meaning that we are stuck with the status quo debt trap model until the Western-centric fiat-based casino financial system finally crashes and burns.
We lie between a rock and a hard place, as even if we did have the political means to get this done, the Western hegemon would crucify us economically before we even got there.
Besides, I don't believe that the will is there anyway because of the vast amount of Russia/Sinophobia that has been programmed into us and because ~99% of Kiwis don't understand the mechanics of the private banking cartel's wealth heist from the working classes and the productive sector.
That said, I do notice a distinct change in the tone on this site on this count in the last few months. One year ago, I was almost hung-drawn-and-quartered for even daring to suggest that there might be a solution right under our noses.
Cheers
Col
Thanks for taking time to comment
I really believe we need to move to a Fannie Mae type construct ll re home ownership and funding.
We need to insulate ourselves from eventual crash. Better implemented as a rescue plan? be some losses along the way. Farm ownership as well. BS11 is not going to cut it. Current debt levels will not survive historical debt crisis such as war between China / Taiwan..... or so many historic constructs.
We will need a rescue at some point. I have been involved in an amount of BS11 planning and have formed my own views from an IT perspective that the business model on the other side does not hold.
Much like we do not really want to plan for the coming alpine fault we do not want to plan for what is obvious coming financial earthquakes.
Kiwis don't understand the mechanics of the private banking cartel's wealth heist from the working classes and the productive sector.
Most of the working classes' wealth has been eroded by the nature of the value of their labour being eroded by globalisation.
We in the West have ridden on the coat tails of colonisation, and the previous technological and industrial advantage held over much of the rest of the planet. But that advantage has now well passed, and workers' wealth has effectively been exported to markets where labour is cheaper and the industrial infrastructure is newer and more efficient.
You can do whatever you like regarding banking and the nature of money, but nothing can reverse the depletion of labour value, short of a crash and reset. It's a phenomenon observed for centuries and it's playing out currently very true to form.
Marx's vision was for a communist revolution to occur once an economy had reached a certain level of affluence. That's never really happened as most historical ones were inheriting fairly depressed circumstances. So maybe, that might still be a natural progression away from capitalism.
Thanks, Colin for the brilliant explanation of what I felt - my gut reaction to the piece is now far more informed thanks to your contribution.
Jeffery Sachs is my go to Ivy league economist/commentator these days.
Your kind words are very much appreciated, Kate.
I too, respect Sachs very much - he is an extremely courageous man, going up against the might of the AAZ alliance - we both know only too well this can get people killed.
That said, I was always critical of his work and mandate in advising Yeltsin’s government, after the fall of the Soviet Union, and what became known as "shock therapy" - which was essentially based on rapid privatisation, price liberalisation, and austerity.
The stated goal was to prevent hyperinflation and the collapse of the economy even further.The GDP collapsed by ~40% between 1991-1998, and hyperinflation reached 2,500% in 1992.
The policy failed miserably and became a humanitarian disaster. Life expectancy dropped by 6 years, largely due to poverty, alcoholism and suicide, and there were an estimated 5 million excess deaths between 1992 and 2001.
State assets were stolen by insiders, with 23 oligarchs gaining 39% of the total Russian GDP, and 74% of the population was in poverty by 1994.
The problem was that privatising in the absence of the rule of law was never going to work, and the shock therapy model helped create the vacuum that enabled the debacle, and Yeltsin's cronies implemented it. Here are some views that I happen to agree with...
"Shock therapy was a disaster ... Sachs bears responsibility for advocating policies divorced from Russian realities." - Joseph Stiglitz
"Privatisation created a kleptocracy, not a market economy." - David Kotz
"The 1990s were a national humiliation engineered by Western advisors." (Sergei Guriev, exiled economist)
Also, well worth noting, is that Sachs wasn't a dogmatic ideologue - he clashed with the IMF over debt relief. But his fundamental miscalculation was treating Russia like Poland, plus ignoring Russia's weaker institutions and vast resource wealth. This is why the question of his "vindication" argument has never been resolved.
My personal opinion is that he is now doing great work, and he could well be one of the voices that might just be instrumental in saving humanity from a nuclear holocaust.
There is little doubt that he is willing to put his neck on the line for a great cause, and to help expose the horrendous war crimes of the US state, plus their complete lack of regard for international law and diplomacy.
I am eternally grateful for this. Perhaps his realisation of the policy mistakes he made as director of the Harvard Institute for International Development (1995–1999) has spurred him on to make amends?
I respect that, as I believe that humanity needs all the help, experience, and wisdom that it can muster, simply to have any hope of surviving the next decade.
Great to get your opinion on things - current and historical.
Some of the best economic minds of that era believed in that 'shock therapy', which I assume came out of the Chicago School in that heyday? Roger Douglas and Milton Freidman included. I've always admired Roger, despite the way neoliberalism was implemented in NZ. Whereas Russia had it's oligarchs, we had our Fay Richwhite's. The big problem with the Chicago School promoters/creators was that government's were allowed (i.e., by design, I suspect) to fall way behind the private sector opportunists. And they just kept de-regulating to make it even worse.
In NZ anyway I think we got so into de-regulation that we lost institutional knowledge of how to write good law/regulation. The RMA is the poster child. So many tack-ons and amendments just making it more and more unwieldy (national direction was woeful over many decades as well), and no proper fundamental change for decades and decades.
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