America’s white-collar recession

OPINION:

The U.S. economy is in a tougher spot than when President Trump returned in January.

The Biden economy had just completed a remarkable sprint. Annual GDP growth averaged 2.8% in 2023 and 2024, when only 1.8% to 2.0% is believed possible at full employment. Even with unemployment below 4% in the summer of 2023, the economy managed to add 174,000 jobs over the next 15 months. That’s double the pace likely attainable through indigenous population growth and regular legal immigration.

Yet unemployed white-collar workers — middle managers, administrative personnel and professionals — face increasing challenges in finding new jobs.

Mr. Trump’s return boosted optimism that strong growth could continue through supply-side reforms, including deregulation to free up domestic energy production, requiring electric vehicles and other green industries to compete on a level playing field with legacy technologies, and tax cuts to better enable historic investments in artificial intelligence and legacy industries.

The stock market rally that followed his reelection has moorings in optimism that agentic AI — programs that independently perform tasks and make decisions — will boost productivity and corporate profitability as those spread throughout the economy.

Sadly, a misplaced presumption was that Mr. Trump would use tariffs and deportation policies surgically to mostly correct imbalances in trade with China and deport criminals among the illegal immigrant population.

The Middle Kingdom continues to grow, but awkwardly.

For years, it indulged in massive private and provincial borrowing to finance a property bubble that has burst and government subsidies and protection for manufacturing.

Now, Beijing confronts domestic consumers burdened by lost wealth and reluctant to spend, and excess factory production that it dumps on world markets — exporting unemployment and assassinating manufacturing jobs elsewhere.

Had Mr. Trump imposed large tariffs only on China and sought to persuade allies to finally recognize that trading with the Asian giant is like buying war bonds that support an invading army, they might have joined us.

On electric vehicles, Canada and the European Union showed such an inclination.

Instead, Mr. Trump’s 360-degree tariff war seeks to reduce what cannot be significantly diminished: the trade deficit.

Thanks to large federal budget deficits, domestic savings are insufficient to finance new home construction, business investment and government borrowing. We must sell Treasurys and other assets abroad, enabling us to consume more than we produce by importing more than we export.

With China, Russia and other Axis nations investing heavily in arms, we need to increase, not decrease, defense spending on a scale that effectively precludes significantly smaller federal deficits.

Still, neutralizing Chinese mercantilism with tariffs and trading more intensely with friendly nations would profoundly rearrange what we make and boost how fast we could grow. It would refocus the U.S. economy toward more manufacturing, aided by robotization and expanded but more efficient employment in white-collar and service activities with agentic AI.

Instead, Mr. Trump’s massive tariffs disrupt supply chains and impose uncertainty that freezes investment decisions.

Mass deportation creates labor shortages and constrains growth in industries where Americans don’t like to work, notably agriculture, construction and manufacturing.

It discourages immigration among those with skills critically needed across the economy. Newcomers fill about one-fifth of STEM and more than two-fifths of doctoral level science and engineering roles.

Overzealous tariff and deportation policies are effectively freezing domestic investment outside the AI space where businesses feel compelled to push forward lest they be left by the wayside.

In the first half of 2025, Amazon, Microsoft, Google and Meta’s capital spending exceeded growth elsewhere in the economy. Their AI infrastructure is expanding while the capital stock everywhere else is stagnating.

In the first half of 2025, GDP growth slowed to an annual rate of 1.6%. Businesses can accomplish that pace and still increase profits by adding agentic AI, which replaces many white-collar and public-facing service workers as they leave.

Amazon will soon have more robots than humans working in its warehouses.

So, we observe business continuing to increase sales more slowly, yet still increasing profitability by lowering headcount.

Artificial intelligence will likely boost productivity by 0.8% to 1.5% yearly on a scale similar to transcontinental railroads, moving assembly lines and interstate highway systems.

Instead of hoisting the economy into hypergrowth — sustaining or exceeding the pace of the final two years of the Biden presidency — AI investments create just enough private sector stimulus to demand to keep the economy growing at a slow pace in the face of excessive tariffs and deportations.

Private sector job creation outside health care and social services sectors, which are heavily dependent on government funds, was negative from May through August.

Unemployed white-collar workers’ prospects are worsening as the average duration of joblessness lengthens.

The economy may not be in a recession, but for many midcareer white-collar unemployed, it’s a depression — a malaise from which they won’t recover.

• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.