The Al boom is masking real problems in the US economy

The situation is worse than putting all your eggs in one basket.

- Natasha Sarin

An internship and jobs fair in North Carolina on Oct 1. There are signs that the non-AI economy is under duress. Tariffs are dragging down growth. Jobs are also hard to come by for young people entering the labour market.

(PHOTO: BLOOMBERG)

Since President Donald Trump took office, the economy has followed a pattern. The administration does something outlandish - tariff rates at levels not seen in a century, trying to fire a Federal Reserve governor - and economists, myself included, warn of the deep risks.

So far, though, the economy has kept chugging along. The market did plummet in April over the "Liberation Day" tariffs, but it has since rebounded many times over, rising to new highs 30 times in 2025. Risky policies that alarm mainstream economists don't appear to be having much of an effect on the economic indicators we follow.

That is because something positive is happening in Mr Trump's economy. It is just happening in spite of his policies, not because of them.

The economy is being bolstered by a remarkable investment boom in artificial intelligence (AI). A credible estimate suggests that AI capital expenditures may reach 2 per cent of the gross domestic product in 2025, up from most likely less than 0.1 per cent in 2022. To provide some sense of scale, that means the equivalent of about US$1,800 (US$2,300) per person in America will be invested this year on AI.

Without these investments, economic growth this year may have clocked in at around 1 per cent. Instead, it is likely to land at almost twice that. Just seven large technology firms are responsible for nearly 60 per cent of the gains in the S&P 500 this year.