US 'secret sauce' at risk: tariffs, threaten economic edge
The American economy has outperformed others by relying on a sort of secret, magic 'sauce', but Washington's tariff and immigration policies are threatening to shift the outlook, according to leading US scholars attending the 'Summer Davos' in China.
At the gathering, formally known as the World Economic Forum's 16th Annual Meeting of the New Champions, they collectively took stock of the US economy and debated whether it would be China or the US that most advances the frontier of tech and innovation.
In one discussion on Tuesday, panellists such as former World Trade Organization chief economist Robert Koopman and Harvard professor of government Graham Allison took a look back at the US from where they sat in Tianjin, and they discussed the outlook for potential developments in the face of Washington's policy changes.
Explaining that America's special concoction has several important ingredients, experts speculated that the US might be ditching key components, and that China may be advancing more quickly.
'Sectors have been able to get the capital and the workers they need, and it drives productivity growth in the US. You add immigration to that … It creates a nice magic sauce,' Koopman said.
That sauce also includes higher education, according to Paul Gruenwald, chief economist at S&P Global Ratings.
'We're getting talent from all over the world in our top universities,' Gruenwald said. 'They start new businesses, they create value for the US.'However, he explained, 'if you start to damage that linkage between the education, finance and tech sectors, there are negative consequences'.
'If that secret sauce for medium-term growth is gone, then you would have to be marked down there,' he said.
Harvard's Allison, meanwhile, said China also has all the right ingredients.
'They have a lot of risk,' he said. 'But I think they have all the ingredients to continue along the path that they're on, growing. It's generally twice the rate of the US, so that path looks likely to continue.' Koopman also praised China's advancements in tech.
'The US economy is one of those economies that really pushes the frontier out. If you look at China's model now, it is really focused on innovation and pushing out that frontier, too. I think that's a very good model.' Since the Covid-19 pandemic, the US economy has fared better than most other economies. But panel members also voiced concerns about the damage that US President Donald Trump's policies could do.
'As we watch what's now happening, while I look for the American team to do as well as possible, the current performance of the US economy, in my view, is poor and getting poorer,' Allison said.Such worry over a slowing US economy is also borne out in the World Bank's latest growth forecast published this month, with the US economy expected to expand by a mere 1.4 per cent in 2025 compared with last year's 2.8 per cent clip. China is forecast to grow 4.5 per cent this year.
The global economy and trade outlook has been further complicated by Trump's erratic tariffs, coupled with simmering regional tensions such as the ongoing Israel-Iran conflict that the US is now involved in.
Koopman said Trump's pursuit of tariffs and other unilateral policies will not only make the US isolated, they will increasingly push other countries closer to China.
'I suspect that many of those countries would say, 'we have challenges with China, but China is more predictable than the US', so there's this uncertainty aspect,' he said.
'You'd rather deal with the devil you know than the devil you have no idea what they're gonna do.' Some analysts also warn that Trump's immigration policies and disputes with top American universities could do more harm than tariffs.
'If I were running the rivalry against the US, and you tell me, 'I have a great plan; we can undermine this source of American strength', I would say that's fantastic. It would be a brilliant strategic coup,' Allison said. 'Unfortunately, [that's what] Trump, at least in some of his impulses, is doing to ourselves.
'I still hope this is going to get sorted out … there's already some substantial damage.'
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