Since Donald Trump’s election three months ago, I have delivered a clear and consistent message to readers.

I love his deregulation policies. I love his intended tax cuts. I love his plan to make the U.S. government more efficient.

But I don’t like his tariffs one bit.

A U.S. tariff is a tax paid by American consumers not foreign businesses.

(Although those non-U.S. firms can be hurt by lower sales, lower profits, and lower margins.)

American tariffs raise prices and stoke inflation, not only increasing the cost of imported goods but allowing domestic companies to raise prices on their own products without losing market share.

They also lead to retaliatory actions overseas. (Foreign governments come under immediate pressure to put taxes on U.S. exports in return, potentially sparking a trade war.)

That’s what happened in 1930 when Congress passed – and President Herbert Hoover signed – the Smoot-Hawley Tariff Act.

It helped create that famous economic downturn known as The Great Depression.

The market sold off earlier this month on the realization that Trump isn’t just using the threat of tariffs as a bargain chip, as many had hoped.

He’s set on implementing them.

I expect these tariffs will be unpopular – as if Americans are excited about the prospect of paying more for their Samsung TVs, their Toyota sedans, and their Modelo beer – and so damaging to the economy that they will be sharply reduced or even eliminated soon.

Tariffs aside, the United States has a secret sauce that others lack: a productivity boom.

America’s Secret Productivity Boom
Americans keep finding ways to get more done at work. And “doing more with less” is the very definition of productivity gains.

So far this year, the quarterly productivity of U.S. workers has grown by at least 2% compared with a year earlier.

The third quarter was the fifth straight quarter of such growth.

And over the past five years, quarterly productivity growth has averaged 2.1%, a sharp improvement from the 10 years prior.

The numbers are adjusted for inflation, which means productivity gains don’t merely reflect higher prices charged for goods and services.

In fact, many businesses are increasing their revenue without passing on higher costs to customers.

And – thanks to the policies of the Donald Trump administration – we are well set up for a low-inflation economic boom in 2025.

Here’s why…

Growth Matters

Productivity growth is crucial for economic prosperity and improving living standards.

And the recent trend has positive implications for wages, prices, and overall economic growth.

Here’s why productivity gains are essential:

  1. Higher wages. As workers produce more output per hour, companies can afford to pay higher wages without increasing unit labor costs.
  2. Lower prices. Increased efficiency allows businesses to reduce prices without sacrificing profits. This benefits consumers and improves competitiveness.
  3. Stronger economic growth. Over the long run, increasing productivity is the main driver of higher living standards.
  4. Meeting challenges. Productivity growth helps businesses address issues like workforce shortages, inflation, and higher interest rates.

In 2024, U.S. labor productivity grew by 2.3%, outpacing the 1.5% annual increase since 2004.

Productivity growth averaged just 1.5% in Europe and 1.8% in Asia.

Was our outperformance due to the policies of the Biden administration? (Spoiler alert: No.)

The two primary causes are technological advancements and remote work.

— Alexander Green

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Source: Total Wealth