Test The Grand Continent. The ideas and analyses you won’t find anywhere else. But you’ll see them everywhere soon. In your inbox from 8 euros per month
The Republicans have just lost both chambers of Congress. What is your assessment of Donald Trump’s economic policy in his second term?
One must recall Clinton’s maxim: “It’s the economy, stupid.” Trump’s victory in 2024 came from the inflation surge at the end of the preceding period, which had lowered living standards. A number of retrospective studies show that Trump won by promising to defend purchasing power. He made commitments that were very engaging in this regard: to lower energy prices by loosening regulations, to reduce drug prices, etc.
We can venture this assessment because the last eighteen months are enough to do so. For me, the key date of this second term was the bombing of Iran, which brutally exposed inconsistencies.
Is the Republican defeat therefore primarily explained by the unfulfilled promise of higher purchasing power?
Take a few examples. The price of medicines did not fall, even though Trump had promised to cut it in half. Health spending accounts for nearly 19% of the United States’ GDP. What he did was more to restrict access of the poorest to medical care.
Above all, what had drawn many socio-economic groups to Trump—Latino Americans, for instance, who heavily voted Democrat in these midterm elections—was a project that was not ideological. Trump is therefore somewhat a victim of the fact that he promised the material improvement of living standards, and did not deliver it.
Next, the tariffs did not have the anticipated effect. Many studies show that 4 to 5% of the living standards of the working classes came from the relatively low relative prices of consumer goods imported from China. Removing this advantage is to reduce, in the long run, living standards, without a Detroit-style boom in electric vehicles to compensate.
Third element: Trump wanted tariffs to replace the income tax. That takes us back to the XVIIIth century, when the income tax had not yet been invented and tariffs funded the state. Trump expected three things from it: close the budget deficit, reindustrialize, and serve as a political lever to obtain concessions, as in Brazil to try to get Bolsonaro out of prison. Three objectives for a single instrument—and the instrument failed to achieve any of them.
Why, in your view, is the bombing of Iran the key date?
Donald Trump had promised peace in the seven or eight conflicts he claimed to be resolving. Yet it is he who started the war, aided Israel in rearming, and launched strikes. The most serious thing is that his aim was regime change, the stopping of nuclear development, and, with Israel, the pacification of the Middle East. Six months later, the exact opposite occurred. This is a constant of his policy: 180-degree reversals.
Because he had purged about twenty generals from the general staff, no one dared present to him, among the scenarios, the possibility of closing the Strait of Hormuz, and he himself had not contemplated it. Hence an entirely unforeseen effect for him.
What were the economic effects of this misreading?
The continuation of uncertainty and the doubling of oil prices. Financiers had supposed in June that there would be a price spike and that by September everything would be settled, with a return to calm. That scenario was completely destabilized by the closure of Hormuz.
Trump had promised to lower energy prices. But with the war in Iran, a lasting situation was established, something no one had anticipated: the price of oil fluctuates up or down based on Trump’s statements, but at a level above $100 per barrel since June. And gradually, this feeds into prices across the board.
Diesel at $6.39 per gallon represents a huge cost: according to some estimates, about $3,500 per year for the average household. And this price is visible daily, or at least weekly: unlike durable goods, it is constantly in sight.
What economic incoherences did the war reveal?
First, the budget, by permanently maintaining low taxation on capital, induces overheating. Yet the American economy is running below capacity. By firing all illegal immigrant workers employed in farming, services, and personal care, we are undermining sectors that are highly labor-intensive.
Second element: tariffs were supposed to spur rapid reindustrialization. But if the economy is dynamic, it depends substantially on sectors: AI is booming while other sectors are almost stagnant. There has been no reindustrialization, but industrialization around AI—paradoxically, the United States has chips and software, but not the manufacturing of the corresponding hardware.
It is a constant of his policy: 180-degree reversals.
Robert Boyer
Last point: as living standards fell, the average savings rate of American households declined, so there is a need to import a lot of capital from abroad to support a huge deficit, worsened by the capital inflows to AI.
Trump was carried to power by a broad coalition with divergent interests. Has this alliance changed?
Yes, and this is another reversal: at the outset, Trump was against cryptocurrencies and hostile to Silicon Valley. However, under the influence of big bosses, he became a defender of cryptos. He even launched a few himself, and for a time, with an Elon Musk-like role, acted as a spokesman for rationalizing the budget of the federal administration. He embraces the idea that the state must be run like a large company, the only entity capable of rationality.
We are witnessing a striking alliance shift. Indeed, his base remains among entrepreneurs and the oil industry, which is still the case. Yet new is that for Donald Trump the future of the United States lies in the domination and monopoly of AI, in competition with China.
What is his record in the field of AI?
Even in this domain, the record is mixed. As long as OpenAI and Anthropic do not turn a profit—one of them does not expect to before 2030—while their revenues are booming, they are in a precarious position. The hyperscalers, the former GAFA—Google in particular—told them: “We will capitalize you, and you will buy computing power from us.” It is a capital-for-computing exchange to guarantee the indebtedness of these companies, which, without this support from the GAFA, would not be profitable.
In this context, Alphabet’s stock, Google’s parent company, fell 17% in October. Financial markets now must discriminate: not everyone will win; they must sort the companies that will succeed. And Google was the target. It is revealing: financial markets see the risk that credit has been misallocated.
This is fundamental, because these developments strike at the heart of the idea that Trump would manage to advance through AI before the end of his term. Yet this hypothesis is becoming uncertain. Gradually the probability of a bubble bursting before the end of the term grows—especially as he moves to deregulate financial markets to maximize credit and outrun Beijing.
Is the AI gamble thus already failing?
Industrial revolutions have always begun with speculation. Even railways in England went through a period of creative destruction, in the sense that many firms were eliminated. And this may well occur during Trump’s term.
But in the AI race, China is now only two or three months behind in software, with open-source software that is far more economical, running on local computers, while the OpenAI and Anthropic race is a battle for monopoly. The winners take it all, as Microsoft did in the past for software, or Google and Amazon.
Thus, the end of Trump’s term will be difficult, because his bet rests on the profitability of AI.
Parallel to this, the organization of work itself is undergoing change. Many studies show that so far the consequence has been a fall in the relative wages of all those whose jobs are affected by AI. There is indeed a revolution underway, but it is not mass unemployment of the interwar period: it is the destabilization of workers’ skills in the face of AI.
The Democrats’ victory was also driven by the politicization of data-center construction.
Data centers are, indeed, extremely electricity-intensive, to the point that local populations oppose them because local electricity prices will rise, water may run short, and the centers are noisy and create environmental nuisances.
Unlike in the case of China, public opinion is not broadly favorable to AI. There is fear of losing one’s job, fear of concentration, but no broad enthusiasm—and yet this is the country of Edison and Ford. This revolution is seen as dangerous by a large portion of American workers.
By contrast, China’s situation is quite extraordinary: Chinese public opinion has accepted social credit; the strengthening of a surveillance-based AI society is already present; and you have a Communist Party capable of handling systemic risks.
In the US-China competition, what strikes is the acceleration of China’s rise, all the more paradoxical given that China suffers from overcapacity. The real estate crisis is not resolved, the president’s authoritarianism is not a good long-term thing, young graduates find themselves unemployed. China is not the El Dorado: major capitalists want to move their wealth to tax havens or Canada. But it fares much better than the American model geopolitically. It is a reversal of history: Trump was supposed to be the architect of China’s decline; he is its accelerant.
The Democrats won both chambers. What does that change?
A number of decisions implemented by Trump are already in place, notably the impossibility of compromise between Republicans and Democrats. There used to be a hard core: Democrats leaned toward social policy, Republicans favored stability, but they could reach agreements. You now have polarized populations, identity politics. In the face of the same conjuncture, Republicans judge it excellent, Democrats catastrophic. There are no longer any points of agreement.
Trump intensifies the rift among citizens themselves, and between citizens and the federal government; he has strengthened distrust. Trump wants a strong central power; he would have the federal state impose itself in defiance of the Constitution – up to sending the National Guard.
Trump was supposed to be the architect of China’s decline, he is its accelerant.
Robert Boyer
In this context, Republicans and Democrats will not reconcile. The fissures in America are here to stay, and in my view, this will be the long-term governance challenge for the United States posed by the next election.
So this victory will not alter the dynamics you describe?
I am a long-term analyst. And in the long run, what strikes me is that Trump is like the captain of a ship who himself opens a breach in the hull. Let me describe the breaches created by Trump.
The first is to sever ties with all the skills. Out go the generals and diplomats: he replaced them with a real estate magnate and a family member who must confront professional diplomats. The loss of expertise is lasting: it’s as if memory has been erased. And this memory was bipartisan: it was a common asset that Trump has sabotaged. The same goes for the intelligence apparatus.
The second breach: the United States’ most valuable asset is the marriage of radical innovation with deep financial markets and venture capital. This is something no other country in the world possesses, not even China. And now Trump decides that subsidies will no longer be granted according to scientific criteria, but according to their alignment with his political project.
Yet we are in a context where half of Silicon Valley’s CEOs were born abroad. American science is 60% made up of the world’s brightest researchers who came to the United States. And now they are asked to pay $100,000 to obtain the H-1B visa. These measures are drying up the flow and depriving the United States of the enormous pool of Chinese and Indian engineers. The effects will take twenty years to manifest; they are not yet visible, but they will be profound.
The third breach: he has challenged the independence of the Fed. Before, we knew there would be someone to defend not only monetary stability—inflation—but also financial stability. But if the president pressures by saying the head of the Fed must obey and cut interest rates to ease the debt service, that instills extraordinary doubt.
Could you give an example of the consequences of this uncertainty?
A key example is April 2, 2025, when Trump, very proud, publishes his utterly unreasonable reciprocal rights. Markets crater. And, for the first time, dollars exit the United States, because the country appears as a third-world model: when a government makes a grave mistake, capital withdraws.
In all previous crises, even the subprime crisis, capital flowed in.
This threat of seeing the United States become a third-world country, where mismanagement triggers capital flight, remains marginal—it is not the dominant trend, and the dollar has recovered—but it is an extraordinary indicator, which allows us to imagine something previously unthinkable: the United States becoming a banana republic.
Trump is like the captain of a ship who himself opens a breach in the hull.
Robert Boyer
Perhaps the most important is the vision of Trump’s economy as a real estate agent, which can be summarized as follows: if I make a good deal, it means the other party lost, because the asset has a fixed return. Trump did not understand that in a capitalist economy, 1 plus 1 equals 2.3: cooperation creates outlets and production capacities for everyone. By treating the global economy as a zero-sum game, he acts as a predator to grab resources from the rest of the world, and in doing so, he makes them poorer.
What is the latest breach?
It is the betrayal of allies and alignment with Vladimir Putin’s Russia. Lifting sanctions on Russia to bring down the price of diesel by one or two dollars is catastrophic for all other countries.
This is a central point of my analysis: the Pax Americana is dead, and it will not return. There will be no restoration, no matter who controls the House or the presidency.
Why does that change everything? Because all governments are trapped by the chaos that Trump unleashed: nothing is predictable, everything is reversible, all regimes are caught off guard. The Trump administration has destabilized the few reference points that allowed economies to chart a path in a world of competition. There is no longer a keystone value that stabilizes.
The right example is Canada’s Prime Minister, Mark Carney, who acknowledged the rupture. A standing free-trade agreement has been violated. The Prime Minister stated: we will ally with middle-power countries that believe in free trade, in equal rights, and in multilateralism. The horizon is long, because gravity models of international trade show that Canada and Europe are distant. But this will bind together many economies.
Buoyed by this victory, how should the Democrats prepare for the 2028 presidential election?
First, as in all regimes, when you are elected by rejecting the previous government, it is not ideal, because you come to power without a sufficient program.
The Pax Americana is dead, and it will not return.
Robert Boyer
Then, Kamala Harris was right: American democracy is in danger, but she forgot that Americans are not idealists; they are pragmatists. Trump won by promising to restore the American way of life. What does the mayor of New York do? Promise access to housing, to healthcare, even to food. But the problem is that he presents himself as a socialist, and you know that, for an American, “socialist” means “communist,” or even “terrorist.”
The Democrats will therefore face a problem: they are doing exactly what is needed to improve citizens’ daily lives, but Republicans will call them communists. Rebuilding will be very difficult for the Democrats, who are divided. They cannot present themselves as socialists and hope to win nationwide. They must be much more subtle: say, for example, that they will restore the American dream through at least some universal coverage and shared risk-pooling.
There is no point in waging ideological wars, socialists against conservatives: that era is over. Those wars would be lost day after day.
Can Republicans drop Donald Trump? Can Democrats succeed in embodying the American way of life? The next two years will be worrying but decisive.