The American economy is still growing, but certain pressures underlying it are becoming more difficult to ignore.
Inflation is still above the level that the Federal Reserve has set as its target.
The American government is paying more than one trillion dollars each year in net interest.
Instead of relying on trade policies and sanctions overseas, Washington is depending heavily on tariffs and sanctions abroad, while China is opening up trade links with dozens of African countries and continues to have an extraordinary hold on the processing of critical minerals.
When you put those trends together, they lead to a bigger question: that is, is U.S. economic strategy helping to strengthen America’s position or instead making its vulnerabilities more costly?
Inflation is cooling, but it is not gone
The most recent Consumer Price Index contains both positive and negative points.
The Bureau of Labor Statistics reported that prices paid by consumers increased by 3.4% over the 12 months up to July, a small decrease on the 3.5% increase seen in June.
Core inflation, which omits food and energy, was 2.5%.
That is an improvement.
It is still higher than the Federal Reserve’s 2 per cent longer-run inflation target.
Kevin Warsh is now in a difficult position when it has to decide if the recent slowdown is sufficient a reason to exercise patience.
A poll released by Reuters on Monday available here showed that the majority of economists anticipate the Federal Reserve maintaining its base rate between 3.50 and 3.75 per cent until the end of the year.
The applied economist Steve Hanke of Johns Hopkins takes a more monetarist approach to the issue, claiming that broad money growth should be given considerably more attention when forecasting inflation and having warned that “the inflation genie is out of the bottle.”
There is at least one current piece of data to support that concern.
In June, the Center for Financial Stability found that its wide-ranging Divisia M4 measure of the U.S. money supply had increased by 6.8% on an year-on-year basis, as compared with 6.9% in May.
That fact does not show that inflation must speed up; the Fed has likewise mentioned energy shocks and tariffs as causes of the recent pressure on prices.
Yet it does indicate that the inflation debate is not over just because the most recent figures have improved.
Debt makes higher rates more dangerous
The greater issue is the fact that the current high rates now come into collision with.
The Congressional Budget Office projects that federal net interest payments will surpass $1 trillion in fiscal 2026, which is an increase from $970 billion in 2025; by 2036 the CBO anticipates annual net interest costs will have reached $2.1 trillion.
Phillip Swagel, Director of the CBO, has been particularly straightforward in stating that the country’s “fiscal trajectory is not sustainable”.
People are currently asking for a large amount of compensation in order to lend money to Washington over a number of decades.
On August 14th the Treasury’s official yield data indicated that the 30-year Treasury yield was 5.25% and the 10-year yield was 4.68%.
Even if the Federal Reserve keeps its short-term rate the same, ongoing inflation and large amounts of government borrowing can cause long-term financing to remain expensive.
A government which has a much larger debt has less scope in which to ignore it.
Sanctions can produce unintended consequences
The same question about costs comes up in other countries.
The United States is still employing sanctions as a major means of dealing with Iran.
According to Reuters (https://www.reuters.com/world/china/trump-wants-more-economic-pressure-iran-what-are-his-options-2026-08-16/), the U.S. has identified over 1,000 individuals and organisations as the Trump administration looks into adopting more stringent measures, such as applying further pressure on Chinese refiners and possibly on financial institutions linked to Iranian trade.
The case for imposing sanctions is simple in that access should be restricted to money, markets and technology until the economic suffering causes the government to alter its behaviour.
The history record is not so clear.
Recent academic research has discovered that sanctions can have a “rally-round-the-flag” effect in certain authoritarian countries, which results in a strengthening rather than a weakening of support for the government in question.
A different review, this time using the TIES sanctions dataset, gives the success rate as about 25 per cent, even though the results differ according to the objective and the circumstances.
Hanke puts the argument more forcefully by asserting that sanctions can have the effect of strengthening the countries they are meant to weaken.
Iran shows what the problem is.
According to a report by Reuters in June available at this link, China was purchasing approximately 90% of Iran’s oil even though the sanctions regime was in place.
Pressure may harm Iran even if it fails to cut it off.
China is turning trade into influence
The greater worry is that nations which are experiencing economic pressure from the United States are finding themselves with other options.
China is ensuring that this will be the case.
Starting on May 1, Beijing has removed tariffs on imports from 53 African countries with which it maintains diplomatic relations.
Meanwhile, China-Africa trade has surged, and Beijing is also expanding the use of the yuan on the continent.
Standard Bank and the Industrial and Commercial Bank of China were later given the authority to run a renminbi clearing system for 19 African countries.
Richard de Roos, a senior executive at Standard Bank, stated that the arrangement places the bank in a better position to support Africa’s increasing trade with China.
It by no means implies that the dollar is about to give up its position as the dominant currency.
Yet the impact on the economy varies depending on the margins.
The importance of critical minerals is clear when looking at those margins.
According to the U.S. Geological Survey, China is still a major source for 14 of the 33 critical minerals on which the United States is most dependent for imports.
China’s position in the area of rare earths is even more notable.
According to a report by Reuters (https://www.reuters.com/science/bachelors-rare-earths-china-there-are-schools-that-2026-06-01/), China produces more than 90% of the world’s processed rare earths and rare-earth magnets.
These materials are used in electronics, electric vehicles, power systems, aircraft and military technology.
America still has huge advantages, including leading capital markets, innovative companies, major universities, the dollar and a large consumer economy.
The risk lies in thinking that those advantages cannot be lost.
All of these factors, the inflation that is above target, the interest bills amounting to a trillion dollars, the sanctions becoming increasingly complicated, and China’s growing commercial presence, point to the same conclusion.
Economic power is not merely something that a country has.
It has to continuously earn it.