On Thursday, the US Department of Commerce released its latest revision to its GDP estimate for the final quarter of 2024. Although backward-looking, it nonetheless provides a snapshot of the economy’s current health and its direction of travel, and this one does little to dismiss growing fears of a coming slowdown.

While economic growth eased somewhat from earlier quarters, it remained robust. However, it was propped up by both private and government consumption, whereas exports and investment fell. With recent reports suggesting that consumer confidence is dropping, it’s likely that portion of the economy may therefore already be weakening. Indeed, there’s some reason to believe that a lot of the buying of the last few months has been done by businesses and consumers looking to lock in prices before any tariffs begin to bite.

Consumers looking to beat price rises actually seem to be ahead of the curve. This is because inflation, which had resumed rising late last year, rose even more than originally thought. This, of course, happened before the change of administration. Add in the daily headlines about tariffs since Donald Trump took office, and it’s no surprise that consumer surveys reveal Americans expect prices to take off in the months ahead.

Nor will government consumption pick up the slack left by private shoppers. Although it’s not clear just how much money Elon Musk’s DOGE is actually cutting from federal expenditure, what is clear is that the job market for government employees has cooled sharply, with many recent hires having lost their jobs. Of course, the rationale for the slash-and-burn approach is that the administration will then be able to return the savings to the public, whether via DOGE dividends or, as seems more likely, by making the 2017 tax cuts permanent.

Yet it’s not clear if the tax cuts, if they happen, will have the same impact they did back then. Assuming Congress manages to pass a budget in the next couple of weeks, it may maintain the existing tax cuts — which is to say, keep the status quo. Without new juice, it’s not clear this tax package will have anything like the stimulative effect the last one did.

That leaves exports and investment to keep the economy afloat. One can imagine a world in which Trump’s tariff threats induce other countries to buy more American products, as the Europeans have hinted they’ll do with gas. Similarly US companies may now be inclined to go local, as Apple has done with its recent $500 billion investment in US production.

It’s possible. But, judging from the experience of his trade war with China during his first administration, governments have a way of pledging to buy stuff then quietly not doing it. In Trump’s first term, the Chinese didn’t carry through on their pledges to buy more US goods and more recently, Canada’s promise to beef up border security turned out to be a measure already planned. Of course, exports may well rise, but it would be risky to bet the farm on it.

As for investment, business surveys reveal a similar anxiety to consumers among firm managers, who are postponing investments amid the uncertainty not only of the tariff talk, but of possible sharp shifts in policy. For instance, many investments that had been planned amid the Biden administration’s Inflation Reduction Act may lose their subsidies or tax breaks. Until potentially-affected businesses get clarity on what Trump will do, and in particular if he goes ahead with tariffs or not, they’ll hold fire.

All told, after a record run, the American economy is starting to show signs of weakness. It’s too early to call a recession, but the risks of one coming are now rising.

---

John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

---

China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

---

Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

miquelvilam

---