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 Donald Trump, whose erratic, unlawful policies have already upended the postwar era of globalization. Faced with so much chaos and uncertainty, can we say anything with confidence about where the US and global economies are heading?

One thing we can say is that the US economy is not doing as well as Trump, ever the con man, 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 (and American workers with darker complexions more broadly). 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 labor supply at a time when the domestic labor force is declining. This matters for everyone, because 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 color, even US citizens, are afraid to leave their homes, lest they be abducted and brutalized 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 behavior on the part of businesses and consumers.

Trump's tariffs - whether levied or threatened - and other on-again, off-again policies should be recognized 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.

As numerous Nobel laureates in economics have emphasized, the "wealth of nations" lies in institutions, not least the rule of law. But Trump is trampling on the rule of law and replacing it with an extortionary regime of deal-making (and self-dealing), where government favors (like export licenses for Nvidia or subsidies for Intel) are granted in exchange for stakes in the company's future profits. Of course, over time, Trump's targets for extortion will dwindle. Having recognized the danger of relying on the United States, many countries are already pursuing new trade arrangements.

The Future of an Illusion

Why, then, is GDP still growing (though not as robustly as it did under President Joe Biden), 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 materialize. (This is especially true for Tesla, owing to Elon Musk's embrace of Trump, which has alienated many consumers.) I am among the many commentators who see today's valuations as the product of a bubble, one that has been sustaining not only the stock market but the entire economy. 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 likely 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% 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 unraveling of supply chains could unleash price increases greater than the tariffs themselves.

That brings me to the critical question: What country would willingly subject itself to the whims of a mad king? It is not as if the US has a stranglehold on the supply of critical minerals or rare earths, without which the modern industrial age crumbles. It is not as if there aren't markets elsewhere. The law of supply and demand works just as well without the US as with it.

As Adam Smith and David Ricardo taught us, economic growth is about leveraging comparative advantages and economies of scale. But as Trump (and Russian President Vladimir Putin) has taught us, relying on unreliable trade partners can be enormously disadvantageous. Besides, the US is not as important as it used to be. It now accounts for under 10% of global exports. While some firms' profits will suffer in a post-American global economy, others will benefit. While some workers will have to find alternative employment, others will find new demand for their skills.

To be sure, the short run 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. The transition has already begun, and though global growth will suffer, the pain may be less than many fear. In Europe, for example, investments in rearmament - another byproduct of Trump's self-destructive policies - will provide a major boost.

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 toward 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.

From Project Syndicate