While there's a popular narrative about a US manufacturing resurgence, the massive capital spending on AI contradicts it. By consuming a huge portion of available capital and accounting for half of GDP growth, the AI boom drives up the cost of capital for all non-AI sectors, making it harder for manufacturing and other startups to get funded.

A recent Harvard study reveals the staggering scale of the AI infrastructure build-out, concluding that if data center investments were removed, current U.S. economic growth would effectively be zero. This highlights that the AI boom is not just a sector-specific trend but a primary driver of macroeconomic activity in the United States.

While gross spending on AI appears to be a major growth driver, its net contribution to the US economy is significantly smaller. A large portion of AI-related hardware and software is imported, meaning the immediate GDP impact is diluted. AI's more substantial economic benefit is expected to manifest through longer-term productivity gains.

Contrary to a popular narrative, the surge in AI investment has not yet contributed measurably to US GDP growth. This is because the investment largely consists of imported goods, creating a neutral GDP effect, and accounting rules misclassify key semiconductor components as intermediate goods rather than final investment.

The US economy is not broadly strong; its perceived strength is almost entirely driven by a massive, concentrated bet on AI. This singular focus props up markets and growth metrics, but it conceals widespread weakness in other sectors, creating a high-stakes, fragile economic situation.

A surge in business technology investment was misinterpreted as an AI-powered economic boom. It more likely reflected companies front-loading purchases of semiconductors and electronics to avoid paying impending 25% tariffs, rather than a fundamental acceleration in AI-related capital expenditure.

While AI-related spending adds a significant 0.4% to U.S. GDP, its net economic impact is much smaller. A large portion of this investment flows out of the country to pay for imported technology and hardware, significantly reducing the direct domestic benefit of the AI spending boom.

The labor market faces a dual threat. Weak demand, linked to tariffs and deglobalization, has already pushed job growth to zero. As AI adoption accelerates productivity, it could further suppress labor demand, potentially tipping the economy into a state of net job decline.

AI's contribution to US economic growth is immense, accounting for ~60% via direct spending and indirect wealth effects. However, unlike past tech booms that inspired optimism, public sentiment is largely fearful, with most citizens wanting regulation due to job security concerns, creating a unique tension.