ANALYSIS: Is the U.S. economy really invincible—or is Trump playing with a live grenade?

The Invisible Cracks Beneath the Surface

Behind the soaring stock market indices, more subtle signs tell a different story. Small U.S. companies—those not listed on the S&P 500, those without armies of tax lawyers or global supply chains—are starting to feel the pinch. The cost of imported inputs has skyrocketed. Margins are shrinking. Hiring in the manufacturing sector is slowing.

The Russell 2000—the small-cap index—looks nothing like the S&P 500. The companies that form the backbone of the real U.S. economy do not share the euphoria of the tech giants. Two economic Americas coexist, and one of them is not doing well at all.

The Silent Inflation of Tariffs

Tariffs are a tax. That phrase should be tattooed on the forehead of every commentator who celebrates Trump’s trade “toughness.” It’s not the Chinese who pay the tariffs. It’s American importers. Who pass them on to retailers. Who pass them on to consumers. The chain is as predictable as an avalanche following a cannon blast.

The average American consumer will pay about $2,000 more per year due to cumulative tariffs by 2025, according to estimates by the Tax Foundation. But this tax is invisible—it’s hidden in the price of a phone, a pair of shoes, or a children’s toy.

And it is precisely because it is invisible that Trump can implement it without immediate backlash. A visible tax sparks political opposition. A tax hidden in prices triggers a slow erosion of purchasing power that no one attributes to the right cause.

When Size Becomes an Argument Instead of an Analysis

The central argument of those who believe that Trump can do “anything” without consequence is based on a premise that deserves to be examined with the rigor it warrants: the U.S. economy is so vast, so diverse, and so central that the usual rules do not apply.

We heard exactly the same argument about Lehman Brothers in 2007. About the U.S. housing market in 2006. About the dot-com bubble in 1999. Size is not a safeguard—it is sometimes a catalyst for disaster. The larger the system, the more spectacular the collapse, when it comes.

America is no exception to the laws of economics. It enjoys a grace period that others do not—thanks to the dollar, thanks to the Fed, thanks to the depth of its capital markets. But a grace period is not immunity. It is a reprieve.

The Three Pillars Propping Up the Illusion

Three factors explain why the damage caused by Trump’s policies has not yet shown up in the major economic indicators. First pillar: the Federal Reserve, which remains ready to intervene in the event of a financial shock—even though its independence is regularly attacked by the White House. Second pillar: U.S. technological dominance, with companies like Apple, Microsoft, Nvidia, and Google generating such colossal profits that they mask the mediocrity of the rest of the economy. Third pillar: the base effect—when you start from a GDP of $29,000 billion, even a loss of a few hundred billion remains statistically marginal.

But remove just one of these three pillars, and the edifice begins to waver. What happens if the Fed loses its independence? What happens if the tech bubble bursts? What happens if trading partners collectively decide to de-dollarize their trade?

Europe as Accepted Collateral Damage

The European Union, Japan, South Korea, and Canada—Washington’s traditional allies—are being treated by the Trump administration with the same tariff brutality as its declared adversaries. Tariffs make no distinction between friend and foe. A 20% tariff on European imports hits BMW just as hard as it would hit a company from a hostile country.

This strategic indifference comes at a cost that the markets have not yet fully grasped. The trust of allies—that invisible resource that allows the United States to maintain military bases in 80 countries, coordinate sanctions against Russia, and project its power through alliances—that trust erodes with every round of tariffs.

A country’s power is not measured solely by its GDP. It is also measured by the number of countries that voluntarily agree to play by its rules. And that number is dwindling.

China Playing the Long Game

Beijing is not reacting to Trump’s tariffs with panic. China is absorbing, circumventing, and redirecting. Chinese exports to Southeast Asia have skyrocketed—some of which eventually end up in the United States via Vietnam or Malaysia, with nothing more than a label change. The trade war has not reduced the U.S. trade deficit. It has made it more complex.

Meanwhile, Beijing is accelerating its de-dollarization. The digital yuan is moving forward. Bilateral agreements in local currencies are multiplying. Paradoxically, every tariff imposed by Trump accelerates the very process that America should fear the most: the construction of an alternative financial system where the dollar is no longer king.

The Great Divorce Between the Markets and the Real Economy

Confusing the health of Wall Street with the health of the U.S. economy is perhaps the greatest analytical error of our time. The S&P 500 is dominated by seven companies—the “Magnificent Seven”—which alone account for more than 30% of the index’s market capitalization. When Nvidia rises 10%, the index rises. Whether the rest of the economy is stagnating or contracting matters little to the headlines.

A worker in Ohio whose factory closed due to Chinese competition doesn’t benefit from Apple’s rising stock price. A farmer in Iowa who lost his market in China due to retaliatory tariffs finds no consolation in Microsoft’s stock price. The stock market measures the profits of multinational corporations, not the well-being of the people.

And yet, it is the stock market that Trump cites every morning as proof of his economic success. It is the Dow Jones that serves as the White House’s thermometer—a thermometer that measures the fever of the rich while ignoring that of everyone else.

Jobs Disappearing in Silence

The headline U.S. employment figures—an unemployment rate below 4%—mask a more nuanced reality. The quality of the jobs being created is deteriorating. Involuntary part-time work is on the rise. Jobs in the manufacturing sector—the very ones Trump promised to bring back—continue their structural decline, which tariffs have failed to reverse.

You can have a job and still be poor in America. You can work 50 hours a week and still not be able to afford a visit to the dentist. The employment figures do not capture this reality—and that is precisely why they are brandished like a trophy.

Smoot-Hawley: When America Thought It Was Invincible

In 1930, Senators Reed Smoot and Willis Hawley pushed through the most aggressive tariff law in American history. Tariffs were raised on more than 20,000 imported products. The argument was the same as it is today: to protect American industry, force trading partners to negotiate, and rebalance the trade deficit.

The result was the collapse of global trade. A chain reaction of retaliatory measures turned a recession into the Great Depression. International trade plummeted by 65% between 1929 and 1934. The United States, far from being protected by its tariffs, was the first to suffer from the isolation it had brought upon itself.

Trump is not Smoot. The economy of 2025 is not that of 1930. But the psychological mechanism is the same: the belief that size shields you from the consequences of your own decisions. History has disproved this belief. It will likely do so again.

The British Empire, too, believed itself to be eternal

In 1913, the pound sterling was the world’s reserve currency. The British Empire controlled a quarter of the Earth’s landmass. Global trade passed through London. The idea that the pound could be dethroned was considered as absurd as the idea that an asteroid might strike Buckingham Palace.

Thirty years later, the pound was a secondary currency. The dollar had replaced it. Not because of a single event, but because of a series of decisions that had eroded confidence, depleted reserves, and convinced the rest of the world that there was a more reliable alternative.

The parallel isn’t perfect. But it’s unsettling enough to warrant closer examination.

A figure that should be terrifying but is just boring

36,000 billion dollars. That’s the size of the U.S. federal debt. A figure so astronomical that it has ceased to make sense to the average citizen. And that’s exactly the problem. When a number becomes incomprehensible, it ceases to be frightening. Psychological numbness in the face of large numbers is a well-documented phenomenon—and the U.S. debt is a perfect illustration of it.

The interest on this debt now amounts to more than 1,000 billion dollars a year. That’s more than the defense budget. It’s more than spending on education, healthcare, and infrastructure combined. Every dollar spent on servicing the debt is a dollar that isn’t building bridges, training engineers, or repairing roads.

When Tariffs Exacerbate the Very Problem They Claim to Solve

The ultimate irony of Trump’s tariffs is that they are supposed to reduce the trade deficit—but they increase the budget deficit. Tariff revenues do not offset the tax losses resulting from the slowdown in trade, compensation programs for affected sectors, and the erosion of the tax base as companies shift their profits overseas.

It’s like trying to put out a fire with gasoline while explaining that gasoline is cheaper than water. The internal logic is consistent. The result is catastrophic.

Unpredictability as Economic Policy

Companies don’t hate strict rules. They hate the absence of rules. A predictable and stable 25% tariff is an obstacle that companies can circumvent, absorb, or pass on. A tariff that jumps from 10% to 145% and then drops back down to 30% within three months—that’s an environment in which no rational investment decision is possible.

Data on U.S. corporate investment in 2025 illustrates this phenomenon exactly. Capital expenditures have slowed. Not because tariffs are too high, but because no one knows what they’ll be in six months. Uncertainty is a poison more potent than any tariff—and it’s a poison that the Trump administration is injecting into the system on a daily basis.

Confidence—that invisible asset worth more than GDP

The dollar as a reserve currency. Treasury bonds as a global safe-haven asset. Wall Street as the nerve center of global finance. These three pillars do not rest on the size of the U.S. economy. They rest on trust—the shared belief that U.S. institutions are predictable, that contracts will be honored, and that the rules of the game won’t change in the middle of the game.

Every presidential tweet threatening to fire the Fed chair. Every overnight tariff reversal. Every statement calling into question commitments to allies. Every sign of unpredictability erodes a little of that trust. Not enough to trigger an immediate crisis. But enough for the alternatives to start seeming less impossible than before.

The 1% That Turns Instability Into Profit

There’s a reason Wall Street isn’t panicking in the face of Trump’s chaos: volatility is a financial product. Hedge funds, algorithmic traders, and major investment banks—all thrive on instability. Every surprise tariff announcement is a profit opportunity for those who can bet both ways.

When Trump announces tariffs, put options pay out fortunes. When he announces a “deal,” call options skyrocket. The unpredictability that companies hate is exactly what financial markets love—provided they’re on the right side of the bet.

So the question isn’t “Is the U.S. economy suffering?” but “Who in the U.S. economy is suffering, and who is thriving?” The answer is as old as capitalism itself: the big eat the small, and chaos speeds up the feast.

Economic MAGA—A Broken Promise

Voters who cast their ballots for Trump hoping for a return of manufacturing jobs, a lower cost of living, and an America that “wins” in trade—these voters are precisely the ones bearing the brunt of the tariffs. Prices are rising at Walmarts across the Midwest. Family farms are losing their export markets. Small businesses can’t keep up with import costs that change every quarter.

The cruelest irony of Trump’s economic policy is that those who believe most strongly in “Make America Great Again” are the ones paying the highest price for it. And those who never believed in it—the Manhattan billionaires, the hedge funds, the tech giants—are the ones reaping the greatest benefits.

Independence Under Constant Pressure

Jerome Powell and the Federal Reserve have resisted pressure from the White House to cut interest rates. This resistance is the last credible safeguard for the U.S. economy. An independent central bank is what distinguishes the United States from Erdogan’s Turkey or the Kirchners’ Argentina—countries where political interference in monetary policy has led to inflationary disasters.

But this resistance comes at a political cost. Trump has openly raised the possibility of replacing Powell. His advisers have discussed legal mechanisms to limit the Fed’s independence. If this red line is crossed—if markets begin to doubt the independence of U.S. monetary policy—then the dollar’s “exorbitant privilege” will no longer serve as a shield. It is a relic.

The Trap of Monetary Complacency

Even without direct interference, the Fed faces an impossible dilemma. If tariffs cause inflation, it should raise rates. If tariffs cause a slowdown, it should lower them. Tariffs cause both simultaneously—that is the very definition of stagflation, every central banker’s nightmare.

The last time America experienced stagflation was in the 1970s. It took a brutal recession orchestrated by Paul Volcker to pull the country out of it. No one in 2025 has the political appetite for such a purge.

De-dollarization — Slow but Real

The BRICS countries have created an alternative development bank. Saudi Arabia now accepts the yuan for certain oil sales. India and Russia trade in rupees. China and Brazil have signed agreements to trade in local currencies. None of these moves threatens the dollar in the short term. Taken together, over the course of a decade, they are shaping a world where the dollar is no longer the only choice—but one choice among many.

Every abuse of the “exorbitant privilege”—every sanction used as a weapon, every tariff imposed as punishment, every threat to freeze assets—accelerates this process. Countries watching Trump’s trade war aren’t wondering if the dollar will collapse tomorrow. They’re wondering how to reduce their dependence so they’ll be less vulnerable the next time Washington changes its mind.

The mistake of believing that the lack of alternatives is permanent

The most common argument against de-dollarization is simple: “There is no alternative.” That is true today. The yuan is not convertible. The euro lacks a unified bond market. Gold is impractical for everyday transactions. Cryptocurrencies are too volatile.

But the lack of an alternative today is no guarantee for tomorrow. Alternatives are being built. Slowly, clumsily, with setbacks and failures—just as the dollar itself replaced the pound sterling. Not in a day. Over the course of a generation.

The Instinct for Power Dynamics

It would be intellectually dishonest not to acknowledge what Trump understands better than most armchair economists: international trade is not an academic seminar. It is a power struggle. China has been cheating on WTO rules for decades—hidden subsidies, intellectual property theft, currency manipulation, non-tariff barriers. Europe protects its agriculture with a ferocity that would make any American protectionist blush.

Trump is right to say that the trade status quo was unbalanced. That free-trade agreements have benefited multinationals at the expense of workers. That China has exploited America’s openness without offering reciprocity. On this diagnosis, he is not entirely wrong.

The cure is worse than the disease

But being right about the diagnosis has never guaranteed being right about the treatment. A surgeon who correctly identifies cancer but operates with a chainsaw is not a good doctor—even if his diagnosis was accurate.

Unilateral tariffs, imposed without a coherent strategy, without consultation with allies, without a predictable timeline, and without clear objectives—these are not instruments of trade policy. They are blind swings in the dark. Sometimes they hit the right target. But the collateral damage is systematically underestimated.

And yet, the White House continues to point to stock market indices as proof that everything is fine. It’s like a 30-year-old smoker showing his latest normal blood test results to prove that tobacco is harmless. The damage is there. It just isn’t visible on the scan yet.

The Next Recession Will Be the Moment of Truth

The U.S. economy hasn’t been truly tested since the 2020 pandemic—and the response to that crisis was massive: trillions of dollars in fiscal and monetary stimulus. When the next recession hits—and it will, because recessions are part of the economic cycle—will America have the same ammunition at its disposal?

With debt at 36,000 billion, interest rates already high, and a Fed whose independence is under threat, the crisis-response arsenal has been significantly reduced. This is the Trumpian paradox: by using the resilience of the U.S. economy to justify ever-more-aggressive policies, he is depleting the reserves that would be needed to weather the next storm.

The Black Swan No One Sees Coming

Financial crises never happen when you expect them to. They happen when confidence is at its peak. When risk models say everything is fine. When markets are convinced that the worst is behind them. The S&P 500 was at an all-time high in October 2007, four months before the collapse of Bear Stearns.

The U.S. economy in 2025 looks dangerously like a system that has absorbed so many shocks without collapsing that it has convinced itself of its own invincibility. That is exactly when systems are most vulnerable.

The Answer No One Wants to Hear

The U.S. economy is neither invincible nor doomed. It is on borrowed time. A reprieve granted by the dollar, by the Fed, by the depth of its markets, and by the lack of a credible alternative. This reprieve is real, measurable, and long enough to create the illusion of permanence.

But a reprieve is not an absolution. Every erratic tariff, every threat against the Fed, every breach of trust with allies, every sign of unpredictability shortens that reprieve. Not visibly. Not immediately. But cumulatively, just as erosion gnaws away at a cliff without the crack being visible—until the day the entire section collapses.

Can Trump do “whatever he wants” without consequences? No. He can do whatever he wants without immediate consequences. And that is a distinction that history always punishes—with interest.

What Readers Should Take Away at 3 a.m.

The next time a commentator tells you that the U.S. economy is too strong to be damaged by Trump’s policies, ask them three questions. Ask them how much debt service costs this year. Ask them what happens when the Fed is no longer independent. Ask them how many countries are actively preparing alternatives to the dollar. If they don’t have an answer, they’re not talking to you about economics. They’re selling you a religion—that of American invincibility. And like all religions, it’s based on faith, not facts.

Signed, Jacques PJ Provost