Ai’s shock absorber effect: why US productivity is outpacing geopolitical headwinds Geopolitical risk, rising labor costs, and smart automation unravel the three-decade-old doctrine of global efficiency.
by Michael Lamonaca, 28 November 2025
The central paradox of the current US economic moment is that despite the most protectionist trade policy in ninety years—a system of high tariffs and geopolitical friction designed to disrupt global flows—the nation’s economic momentum remains surprisingly resilient. What should have caused an outright stagflationary spiral of rising prices and falling growth has instead been partially neutralized by an unanticipated Potential Mode event: the exponential boost from Artificial Intelligence (AI) investment. This AI-led investment boom, centered on hard and soft infrastructure, is acting as a massive structural breakthrough, creating a positive supply shock that strategically offsets the drag of tariffs and economic nationalism, reinforcing the narrative of US exceptionalism and defining the current strategic divergence from global peers.
The Unseen Mechanics driving this resilience are fundamentally rooted in the sheer scale and capital intensity of the AI race. The investment surge is concentrated in data centers, advanced semiconductors, software, and R&D, moving the macro needle in a way past tech cycles haven’t. Analysts estimate that AI-driven capital expenditure (capex) contributed substantially to US GDP growth in the first half of 2025. This surge is fueled by two primary forces: the intense domestic competition among hyperscalers (like Meta, Microsoft, and Amazon) to dominate the AI application market, and the geopolitical rivalry between the US and China for technological supremacy. This concentrated, purpose-driven investment stream is creating an efficiency channel where more output is achieved with fewer inputs, providing a crucial productivity tailwind that directly counteracts the cost-raising, supply-chain disrupting effects of high tariffs.
The Human Layer involved in this phenomenon spans investors, policymakers, and the labor force. Corporate executives are no longer deciding between labor costs and shipping costs; they are making strategic decisions about the cost of intelligence itself. The optimism driving surging stock prices and household wealth is based on the belief that AI-led productivity gains will materialize into long-term profit growth, a belief that has shielded consumer spending from the negative effects of tariffs. Policymakers face a dual policy problem: balancing the political mandate for protectionism (tariffs) with the strategic imperative for technological leadership (AI investment). The labor force, meanwhile, is experiencing a nuanced impact. While some sectors show slower job growth, early adopters in information, professional services, and finance are reporting meaningful productivity improvements, with the overall labor market remaining stable as reduced immigrant worker supply is met by a comparable drop in demand.
Historical and Cross-Disciplinary Parallels suggest this technological offset is not unprecedented. The current AI boom mirrors the mid-19th century railroad development and the late-1990s information and telecommunications surge, both periods where massive, focused capital expansion led to unforeseen jumps in aggregate productivity that cushioned the economy from cyclical downturns or policy headwinds. The current geopolitical balancing act also parallels the Cold War arms race, where government spending and strategic national competition in fields like aerospace and computing generated significant—if unintended—commercial benefits (e.g., the internet). This dynamic confirms that state-driven strategic competition, even when disruptive on one front (trade), can generate structural breakthroughs on another (technology), leading to a net positive for national economic strength, a feature often cited as part of US exceptionalism.
The Divergent Narratives surrounding this boom highlight the internal conflict in the global economy. The pessimistic consensus argues that high tariffs will cause a recession, that US exceptionalism is over, and that the equity markets are in a dangerous bubble. Conversely, the pro-AI optimists (like Hudson Bay Capital) argue that market discipline, institutional guardrails, and the scale of AI investment imply only a temporary slowdown, not a recession, and that AI-led innovation will lift potential growth and preserve US leadership. Multilateral organizations and trade analysts, however, issue warnings, stressing that AI itself depends on globally integrated supply chains for chips and hardware, and that tariffs risk inflating the price of these essential components, effectively placing barriers in the path of the technological ascent they celebrate.
The Verification Challenge lies in accurately measuring AI’s contribution to Total Factor Productivity (TFP) against the cost of tariffs. The tariffs’ full impact on prices has been muted so far by importers front-loading shipments and absorbing costs, meaning the main inflationary effect may still be ahead. Conversely, while early signs show AI reduces task completion time dramatically (e.g., 80% speedup in some professional tasks), these efficiency gains have yet to “move the macro needle” in aggregate TFP, with most companies still in the pilot phase. This lag between micro-level efficiency and macro-level impact creates a window of uncertainty where the economic outcome critically depends on which force—the tariff drag or the AI lift—compounds faster in the next few quarters.
The Consequence Zone shows that this AI-fueled stability deepens the asymmetric economic divergence between the US and its peers. US equity valuations, driven by the AI investment story, far surpass those in Europe, concentrating risk in the US large-cap technology sector and raising vulnerability to shocks if the AI promise fails to fully materialize. Globally, while US exceptionalism strengthens, the race for AI dominance intensifies geopolitical instability with China, creating a dual-use technology rivalry that will continue to shape trade and investment policies for the foreseeable future. The immediate implication is that the US is using its technological advantage as a strategic buffer, sacrificing price stability for accelerated dominance in the next era of computing.
The American economy’s capacity to deploy massive, strategically directed capital into AI infrastructure has created a positive supply shock powerful enough to mitigate the immediate recessionary drag of its own protectionist trade policies, charting a unique and highly divergent course toward technology-led growth.
Tags: AI, Economics, Geopolitics, Productivity, Structural Breakthroughs, Potential Mode, US Exceptionalism