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American economyy's done really quite well both in the long run or the medium run but also even since Donald Trump took over and that feels quite odd given the kind of forecasts of problems from tariffs and from migration and all the things that we and others have written about and the way we found to resolve this paradox was to realize that actually the American economy was really set up for an extraordinary year in 2025. there was a strong baseline going in for the reasons we discussed and then a number of boosts even ahead of that were much stronger than expected
coming through and those are the first of those sort of blue bars that we have up on the chart there. So starting from the baseline which we pull out of pre-Trump forecasts we then see that actually is a big boost from tax cuts. So there's more of that yet in 2026, but in 2025 there's already some a boost from stock markets doing very well, which is partly fueled by optimism about Trump to a degree, but really mostly fueled by the extraordinary advances in AI. And then even beyond that, a specific kind of data center boom that we label AI capital expenditure that
you can see in the numbers, too. And so off that baseline, we reckon were it not for the MAGA tax, were it not for everything we're going to get to, America was set up to be kind of homing in on almost 3% GDP growth. And instead, what happened in 2025 was a lot closer to 2%. That's one way of getting to the MAGA tax, the gap between the two. So the gap between the two is about 3/4 of a percentage point. That's just to keep it simple. The American economy would have grown, you think about 3/4 of a percentage point faster. Indeed. And so that's one way of doing
it. The other way is just to look straight at what did Donald Trump do and how damaging was it? And this is pulling together external estimates, our own crunching of the numbers and so on. We really pulled out three that we thought mattered. The first was tariffs. We talked about those to death. Those have, we reckon, genuinely contracted the economy. We've we've used an estimate there of a sort of 0.2 percentage pointsish, but something pretty material. Just as important, if not more than the tariffs, we reckon was the immigration drag that border shutdown,
mass deportations, towns of people not coming in, all of that. Then finally in our calculations actually the largest of that was the uncertainty. So the sheer churn the sheer chaos and if you look at American business investment outside of the AI sector which has done really well it's actually in a slump. It's actually a slump even worse than what Britain suffered after Brexit which was another similar shock to uncertainty. So you add all that up and you get to a similar figure of again 3/4 percentage point give or take but a pretty hefty mega attacks.
What really struck me about this analysis was not only how rigorous it was, but also that it sort of rings true with what we've been talking about that the things that we thought would hurt the US economy did indeed hurt it. But what is very striking, Charlotte, when I look at this chart is the impact both of the AI capex and the AI wealth effect. I mean, were it not for the AI boom, the US economy would be in much worse shape. Do you want to talk through those two? Sure. So, um, there's been an enormous surge in investment from a few big tech companies, right? Just a
handful of them. And that has had a big effect that you've seen um, in their valuations and the stock market performance. And you've also seen a lot of spending on capital equipment. And this is something I thought was really interesting in your analysis was that part of why the impact on the economy was not greater actually is because so much of the investment on capital equipment is on imports from elsewhere. And the thing that I as someone who you know thinks about at the politics of this as well find so fascinating about the AI um the AI wealth effect and the AI capex
and its contribute contribution to the topline numbers of America's economy is that the wealth effect is not uh shared equally across all parts of American society and there's a huge uh brewing backlash against data centers against the politics of AI and so I think that one of the questions that this administration faces uh is that it wants to take full credit for the economic numbers that we've seen that it could trump it as a success. Uh but voters are not giving them any credit for it and I think the AI effects that you see in this chart are part of that reason. I was going
to say that um the AI effect in a sense is a piece of luck but it's not exogenous to the American economy. It actually is typical of the American economy. ability to mobilize financial resources and to plow and take risks is what makes the American economy so strong and this is the latest example of it. I it makes perfect sense to me to strip out the positive effects of AI but we do need to remember that is actually deep within the kind of DNA of the American economy.
