Julia Demaree Nikhinson/Abaca/Sipa USA via AP Images
Corporate leaders including Mark Zuckerberg, Jeff Bezos, Sundar Pichai, and Elon Musk attend Donald Trump’s second inauguration, in the Rotunda of the U.S. Capitol, January 20, 2025.
Students of economic development refer to “national innovation systems.” Some nations, such as Japan, South Korea, and China, have deliberate systems created through overt, explicit government policy. In America, where the prevailing ideology is laissez-faire, our system is more tacit, but it is a system just the same.
Our national innovation system includes the world’s best research universities, which are substantially funded by government entities like the National Institutes of Health and the National Science Foundation, as well as federally subsidized student loans. They also often have support from Pentagon and Department of Energy contracts and grants. President Biden made this ecosystem somewhat more explicit, but it was there all along, as explained in this 2012 report commissioned by the Obama administration.
This system feeds into startups often financed by venture capitalists, as well as innovation in established industries such as pharmaceuticals. While the U.S. has given away much of its manufacturing, it continues to lead the world in industries incubated by this system, such as biotech. It is hardly accidental that so many startups that in turn grow into world-class companies are located near MIT and Stanford.
In his first term, when President Trump threw federal money at companies like Moderna to produce a COVID vaccine at “warp speed,” Moderna’s existing head start was based on extensive research on mRNA technology funded by the National Institutes of Health and the Defense Advanced Research Projects Agency (DARPA).
But in his second term, Trump seems determined to blow up this system, from his attacks on the best universities to his defunding of federal research institutions. Are these policies even crazier than Trump’s ordinary lunacy? Yes, but there is an asterisk.
The sort of tech that has enabled the so-called Magnificent Seven—Amazon, Apple, Alphabet (Google’s parent company), Meta, Nvidia, Microsoft, and Tesla—to dominate the platforms that most of the world uses are not quite direct products of this ecosystem in the way that, say, biotech is. The innovation system of Silicon Valley works a little differently.
In their origins, some of the tech monopolies did rely on public funding. Google, for instance, was an outgrowth of a National Science Foundation digital libraries grant that supported the work of co-founder Larry Page, then a Stanford graduate student. Tesla would have died without a government loan, but then again it arguably should not be included among the other tech behemoths, as it makes a tiny fraction of their profits. Yet others of the tech behemoths are one-offs and not direct products of our national innovation system.
Amazon grew out of Jeff Bezos’s online bookstore. Bezos studied computer science and engineering at Princeton, but then worked on Wall Street for a decade. Steve Jobs was an inspired loner. Bill Gates was a Harvard dropout. Facebook was the creation of Mark Zuckerberg and four Harvard pals. Yes, all the platforms relied on the internet, and the internet in turn relied heavily on early innovations underwritten by the Pentagon. Palantir depended heavily on a variety of grants and contracts from the CIA.
But Trump seems to have decided that the Silicon Valley part of America’s national innovation system can continue to thrive even if he destroys NSF and NIH and weakens America’s great research universities—at least if we rank social media and online advertising in the same category as, say, a vaccine for pancreatic cancer. On his recent trip to Saudi Arabia, Trump brought along AI entrepreneurs Elon Musk, Sam Altman of OpenAI, Jensen Huang of Nvidia, Ruth Porat of Alphabet, and Andy Jassy of Amazon. The Saudis have made commitments to invest in AI.
Trump has seemingly continued the Biden program of antitrust cases against the tech platform monopolies. But he is not harming their business model in fundamental ways. Indeed, the threat of more aggressive antitrust enforcement may be a classic Trump tactic for keeping them politically compliant.
So if Trump succeeds in permanent cuts in the traditional science and university-based innovation system, America’s leadership in advanced technology and the world-class companies it produced will remain—but will be warped in a particular direction. The Harvards and the Princetons will loom smaller, expecially if Congress passes the proposed tax of up to 21 percent on university endowments, but there will still be plenty of science and engineering graduates to work at all of the tech companies.
Many of the people who work in tech are foreigners, who found havens in American universities. Trump has made war on refugees, but at the urging of his tech pals, he recently reversed his harassment of foreign university students. He may well succeed in increasing the number of specialty visas, as urged by Musk, even as he cuts other immigration.
And while Trump’s tariff wars will reduce trade and cut into economic growth, the platform monopolies will continue to extract exorbitant profits—what economists call monopoly rents—from the rest of the world. The entire world relies on U.S.-based platform monopolies for everything from payment systems to internet access. Amazon’s gross profits, according to The Wall Street Journal, are 50 percent of sales.
As the British journalist Will Hutton has calculated, the larger the company, the more likely it is to be a U.S.-based tech monopoly. Looking at companies valued at over $16 trillion, representing 34 percent of the valuation of all companies in the world, Hutton found, all eight were American.
So, while America suffers from a chronic trade deficit with the rest of the world, especially in manufacturing, American tech giants continue to rake in massive profits. And this kind of world suits Trump just fine, since a few large oligarchs are much easier to reckon with than thousands of independent ventures of the sort incubated by America’s traditional innovation system. Tech oligarchs are also more likely to be libertarian, while research universities and outfits like NIH tend to be liberal.
Conclusion: Never underestimate Trump. Yes, he is mad as a hatter. But when it comes to destroying research universities and throwing in with characters like Elon Musk and Peter Thiel, there is method in his madness.
