The Policy and Public Sector Reform Blitz Continues, but Will It Deliver Sustained U.S. Economic Advantage?

I was in Paris last week at a track 1.5 dialogue with Europeans, Japanese, Canadians, and other allies. Polite, scholarly conversation on economic security soon gave way to palpable worry about the Trump 2.0 policy agenda. Will the administration’s bold and sweeping policy actions across trade, investment, energy, technology, immigration, and foreign relations fundamentally change an economic order that relied on American leadership? Can we expect a fundamental rebalancing of U.S. economic relations with adversaries and allies alike? 

Even as we discussed these questions, down the street, at the AI Action Summit, Vice President Vance was making a forceful case for the United States’ intention to dominate the field of artificial intelligence through innovation rather than “excessive regulation.” While this signaled a break from the Biden-era focus on safety, at least part of the vice president’s argument centered on securing the AI stack “with American designed and manufactured chips,” along with his call for “pro-worker AI growth” and his acknowledgement that the United States will need to work with partners. 

The echoes of Biden-era industrial strategy were noteworthy. It was a reminder that the politics of reindustrialization in the United States will compel policymakers, both Republicans and Democrats, to demonstrate that technology deployment—whether in AI, chips, biotech, or other technologies—will create opportunities for “people and places [heretofore] left behind.” Equally, the economics of global technology competition will compel the United States to rely on supply chain partners from market economies, including in Europe and the Indo-Pacific. 

Notwithstanding continuity around national goals, the question of means is worthy of scrutiny and debate. Will the curious mix of Trump 2.0 economic policies—a laissez faire approach to AI innovation and energy production combined with a revanchist, aggressive tariff policy—help achieve U.S. leadership in global technology value chains? Time will have to tell, as the policies flow through to markets and economies.

In the meantime, we should assess the likely impacts of these policies on incentives for technological innovation and growth—that is, on the health of the U.S. technology ecosystem. For instance, it is theoretically possible that tariffs—if wielded deftly in negotiations—could compel the PRC to halt mercantilist and malign actions in technology supply chains or compel other trading partners to invest in industries in the United States. It is more likely, however, that the various tariffs will raise the costs to U.S. producers, including energy costs, and that retaliatory measures will raise prices for U.S. consumers. In the case of Chinese export controls on critical minerals, the PRC could impose constraints on U.S. chipmaking and EV production. Put simply, the tariff gameplan is not an automatic win for Vice President Vance’s goal of fortifying the AI stack, which includes chips and energy, let alone for costs to American consumers, including in the heartland. 

The Trump administration’s ambitious and fast-paced policy reform agenda will undoubtedly demand more, not less, U.S. government economic management capacity. That’s where the unprecedented, albeit chaotic, public sector restructuring effort comes in. To date, under the auspices of the Department of Government Efficiency (DOGE), 75,000 federal employees have accepted deferred resignations, 10,000 probationary employees have been terminated, and a 60-year-old agency, USAID, has been folded. 

Notwithstanding the public polemics that have accompanied DOGE’s actions, two things can be true. On the one hand, structural reform of the government is long overdue. Efficiency improvements, strategic coordination across government, and a skills upgrading of the federal workforce are urgently needed to meet the demands of modern economic and national security policy. On the other hand, a hasty, opaque approach to retrenching staff, freezing spending, and shutting down agencies can be counterproductive, replete with unintended consequences. 

During my 20 years at the World Bank, I advised dozens of governments undertaking civil service reforms, and I led two major reviews in 1999 and 2011 of this experience around the world. Of the many lessons I learned, two stood out: the process of reform is as determinant of the outcome as the goals of reform, and even the best-designed civil service reforms falter when national leaders fail to lay out an affirmative vision for the role of government. Governments, after all, are mission-driven and dependent both on a service ethos on the part of civil servants, as well as the public’s trust in those who serve. 

I returned from Paris with many questions as well as an awareness that there is an exceedingly wide range of possible outcomes for the United States’ policy, technological competitiveness, and long-term growth prospects. I also left with a recognition that the vigorous policy actions of the Trump administration will undoubtedly have a long tail with second- and third-order effects that deserve our attention. That is why our team is hard at it—working to understand the sheer dimensions of these changes, as well as how adversaries, allies, trading partners, and their private sectors are positioning themselves. You will see our recent work on government effectiveness, trade and tariff policy, tech competition with China, science and technology policy, and U.S. economic relations with adversaries and allies below.

- Navin Girishankar, President, Economic Security and Technology Department