Synopsis Despite initial fears of a global recession due to Trump's protectionist policies, the US and India experienced robust economic growth in 2025, fueled by an AI boom and lower-than-threatened tariffs. However, a potential AI sector slowdown and rising inflation in 2026 could lead to a significant setback for Trumpism and a challenging year for the US economy.
Trump has triumphed over critics, including me, in 2025. His state of the union message in January foretold a sharp rise in tariffs, and dismantling of the global rules-based economic system as well as the US’ role as global policeman that had driven the fastest economic growth in post-WW2 history. Then came his ‘Liberation Day’ in April, when he threatened tariffs that went up to 150% for China, and up to 30% on major partners, inviting retaliation and plunging the world into a deep recession. Markets crashed in India, and everywhere else.
In fact, India and the US have grown at high rates that seemed fantasies 12 months ago. The US has just recorded 4.3% growth in the last quarter, and India has registered 8.2%.
have turned out to be far lower than threatened. The world used to take pronouncements of US presidents very seriously. But Trump soon proved that he was more a real estate salesman than statesman, starting with ridiculously high rates and bargaining down to modest ones. TACO – Trump Always Chickens Out – became Trumpian policy. China’s hold on rare earths turned out to be so powerful that Trump could not get tough with it.
Initially, experts feared that Trump tariffs would rise to an effective 26% of imports. In practice, they have turned out to be closer to 10%. Moreover, China, India and other countries have managed to evade high tariffs by routing them through third countries.
Many US importers stocked up on imports in anticipation of high tariffs, and so held high inventories that enabled them to keep import prices lower than expected for several months. Of the new tariffs, some were absorbed by exporters, some by US importers, and only one-third was passed on to consumers. This kept US.
in check – the November figure was 2.7%, down from 3% in October. Fast growth and low inflation encouraged the US Fed to cut interest rates, fuelling stock markets further. So, Trump’s first year has ended in triumphal victory.
What will happen in 2026? Let me stick my neck out and forecast a sharp setback for Trumpism . Fast growth in 2025 was fuelled mainly by an AI boom. The biggest US companies are investing trillions in data centres to manage an enormous expansion in AI development. Data centres are very capital-intensive and create few jobs. That is why, despite fast GDP growth, unemployment rose from 4.0% to 4.6% between January and November.
This article was originally published by The Economic Times on Dec 30, 2025.
