Through recessions, wars, financial crises and political turmoil, the U.S. economy has maintained its reputation as the safest place in the world for investors to put their money and for entrepreneurs to build their businesses.
That has given the United States a nearly incalculable economic advantage, allowing it to borrow more cheaply, grow more quickly and emerge from downturns more successfully than nearly any of its global peers.
President Trump may be chipping away at that advantage.
In recent weeks, Mr. Trump fired the head of the Bureau of Labor Statistics when her agency reported weak job growth and tried to force out officials at the Federal Reserve when they refused to cut interest rates. He and his aides have used the power of the federal government to target — and perhaps criminally prosecute — perceived enemies, including at the Fed, and to pressure companies over their business decisions.
His administration has used private tax data to pursue undocumented immigrants and overruled the decisions of once-independent government grant makers to cut off funding for certain kinds of scientific and medical research.
Individually, each move carries risks, according to economists across the political spectrum. Undermining Fed independence could lead to faster inflation. Meddling with economic statistics could drive up the government’s borrowing costs. Cutting research funding could threaten long-term economic growth.
Taken together, the Trump administration’s efforts to expand its influence into spheres that were once insulated from political meddling pose a larger threat, potentially undermining the United States’ previously unshakable reputation as a reliable, predictable place to do business.
“These are all real components of why people would trust the United States, and if you start taking them apart, you start eroding that trust,” said Norbert Michel, an economist at the Cato Institute, a libertarian think tank. “At some point you’re no longer the thing that gives people confidence. You’re just another third-world country.”
Economics and politics have always been intertwined. Presidents, along with Congress, set tax rates, make trade deals, tighten and loosen regulations, and control vast amounts of federal spending. And they are held accountable by voters, fairly or unfairly, for how the economy performs on their watch. But while policies and priorities may shift from one administration to the next, investors and businesses have long been able to rely on a bedrock structure of rules and rule makers that are, if not entirely free of political influence, at least somewhat insulated from it.
They could trust, for example, that the Fed would follow its legal mandate to keep prices stable and the labor market strong, regardless of the political ramifications for the person in the Oval Office. They could be confident that statistical agencies would produce the most accurate numbers they could, and leave it to others to fight over how to interpret them. They could have faith that regulatory agencies and the Department of Justice would enforce their rules consistently, and that if they didn’t — if rules were applied unfairly or property was seized unjustly — they could bring those grievances to an independent court of law.
Those principles — some enshrined in law, many protected only by norms and tradition — helped make the U.S. economy an unparalleled magnet for both capital and talent from around the world.
“Every part of the American success, such as it is — the U.S. as an innovation hub, the U.S. as a place where people bring their money for safety — those have all been rooted in some sort of belief and some sort of reality of U.S. courts and U.S. agencies functioning well,” said Daron Acemoglu, an economist at M.I.T. who won a Nobel Prize last year for his research on the importance of institutions to economic growth.
The United States rebounded from the pandemic-induced recession of 2020, and the inflation crisis that followed, much more quickly than most European nations or other similarly advanced economies, Mr. Acemoglu noted. The same was true after the global financial crisis of 2008.
In both cases, he said, the strong recovery was partly the result of the U.S. economy’s reputation as a safe haven, attracting investors willing to lend the federal government money, in the form of Treasury bonds, at low interest rates. That willingness depends on confidence in the long-term reliability of the federal government and its institutions.
“The fact that the U.S. has done so much better than European countries in the last two crises, the financial meltdown of 2008 and Covid, is all because of that,” Mr. Acemoglu said. “The U.S. was able to have more credible monetary policy and the U.S. was able to use fiscal policy more effectively during both of them.”
The pieces are interdependent. Investors are willing to lend to the U.S. government because they trust that the Fed will keep inflation under control, and won’t succumb to political pressure to pump money into the economy to allow further government spending. The Fed, in turn, bases interest rates on economic data that policymakers trust to be free of political influence.
“Good economic data is the bedrock of good policy,” said Donald Kohn, who served as vice chair of the Fed during the 2008 financial crisis.
All of those pieces are now being threatened. Mr. Trump has said he plans to replace the ousted commissioner of the Bureau of Labor Statistics with E.J. Antoni, a right-wing economist better known for criticizing the agency and supporting the administration’s policies than for his expertise in government data. Mr. Antoni still requires Senate confirmation.
Economists worry that the politicization of government statistics could set the United States on a path similar to that of Argentina, Greece and Turkey, other countries that have tried to suppress or fudge politically inconvenient data.
Mr. Trump has also tried to bend the Fed to his will and pressure it to slash interest rates. He has repeatedly threatened to fire its chair, Jerome H. Powell, who has kept rates steady since Mr. Trump took office. The president, who does not have the power to fire the Fed chair, is now trying to stack the central bank with loyalists who will commit to slashing borrowing costs.
On Wednesday, he called on a Biden-appointed Fed governor, Lisa Cook, to resign after Bill Pulte, the director of the Federal Housing Finance Agency, accused her of falsifying bank documents to obtain favorable loan terms. Ms. Cook has said she does not plan to resign.
Particularly alarming to many economists is Mr. Trump’s explicit connection between his demand for lower interest rates and his desire to bring down the cost of servicing the roughly $30 trillion federal debt. That suggests he sees it as the central bank’s job to help the government pay its debts, rather than as the job of Congress and the president to set tax and spending policy in a responsible manner.
If the Fed in effect prints money to help the government cover its obligations, that could encourage even more borrowing when most economists already believe the United States is on an unsustainable fiscal path, in part because of the enormous tax-and-spending bill that Mr. Trump signed into law last month.
Economists warn that if investors lose confidence in the independence of the Fed, or in the reliability of U.S. inflation data, they will begin to see the United States as a riskier place to invest. In the short term, that could result in higher borrowing costs for the government, leaving less money for priorities like infrastructure and education. In the long run, it could increase the risk that the government will be unable to borrow affordably to respond to a crisis.
“The Fed is seen as the mitigating force that keeps the economy rolling along,” said Patrick Harker, who served as president of the Federal Reserve Bank of Philadelphia until June. “We know the history. When you breach the independence of a central bank, there’s no case where it turns out well in the long run. One has to be very careful messing with this.”
The threats to U.S. institutions aren’t limited to statistical agencies and the Fed. The administration has used federal grants and contracts, security clearances, and other sources of leverage to exert control over universities and law firms. It has cut off funding for research into mRNA vaccines and climate change and threatened to revoke visas of foreign students.
Critics have also highlighted other possible examples of political interference, such as the approval of a major media merger after one of the companies settled a lawsuit brought by Mr. Trump.
Such moves may not be that significant individually, but they will take an economic toll.
“It’s like throwing sands in the gears,” said Glenn Hubbard, who led the Council of Economic Advisers under President George W. Bush. “It just makes the economy less efficient.”
Such effects will take time to show up, Mr. Hubbard added. But if Mr. Trump really does politicize the Fed or the statistical agencies, the damage could appear relatively swiftly.
“This is not a danger like cancer that’s years and years away,” he said. “It’s a present danger.”
Still, there is little sign that a crisis is imminent. Yields on government debt — which reflect the interest rates that investors demand to lend the government money — spiked in the spring when the administration announced punishing tariffs on U.S. trading partners, but quickly moderated when Mr. Trump backed down.
Financial markets have hardly reacted to the president’s repeated threats to fire Mr. Powell, perhaps because most investors have been skeptical — so far correctly — that he will follow through. And for all the talk of the costs of uncertainty, economic activity has, for the most part, held up in the early months of Mr. Trump’s term.
But history suggests that fiscal crises are rarely obvious until they are well underway, when they may be impossible to stop. Mr. Michel of the Cato Institute recalled the old line about bankruptcy: that it occurs slowly, and then all at once.
“The most likely scenario is that you just start seeing things get chipped away, chipped away, and then eventually it just kind of blows up,” he said. “Eventually it’s too much, and the right domino falls and it’s not something you can control.”