One of the most popular goals for an economy is economic growth. Did you know the U.S is achieving this goal, as their gross domestic product (GDP) is increasing at 3.8% annual rate in the second quarter of 2025? AI development in the US is the reason for this growth. Furthermore, despite economic growth, new tariffs and policies by the administration have harmed the ‘real’ economy.

What is the ‘real’ economy? Refers to the sector of businesses that focus on the distribution and production of tangible goods and services. An example is Cushman & Wakefield, a consulting company who has a construction project named, “build & construct”. The company is facing an increase of 4.6% in production cost, due to higher interest rate and tariff.

Target, another business in the ‘real’ economy, is expected to terminate 1,800 corporate jobs and its share will fall by 30% in 2025. Despite major companies having experienced falls in revenue the S&P 500 has risen by 15%, due to tech companies like Nvidia experiencing 40% growth in shares in 2025.

Nvidia, and other tech companies have boosted the economy, pushing the US GDP by 1.1% in the first quarter of 2025. Tech companies often have good debt to asset ratios. For example Nvidia, has debt of only 8.5 billion dollars, and 57 billions dollars in investment, and Meta has debt of 49.56 billion dollars and cash & securities of 77.81 billions dollars. In combination with the expansion in AI, the good debt-asset ratio is minimizing the impact of higher interest rates set by the government. However, businesses in the ‘real economy’ who are not facing the benefits of AI expansion, are starting to struggle due to the new policies.

The tariffs set by the US government are reportedly expected to have cost businesses 1.2 trillion dollars in the last year. These tariffs are a major reason for the struggling of the ‘real’ economy, as daily goods are increasing in costs. Small businesses, like Norton’s flower shop, are experiencing higher costs, as 80% of cut flowers in the USA are from foreign countries.

Ultimately, the combination of both increasing tariffs and interest rates are negatively affecting businesses in the ‘real’ economy. Meaning that despite the market experiencing growth, and the economy thriving according to statistics, this is likely due to the development of AI. Thus, AI is masking the fall of businesses in the ‘real’ economy.












Works Cited
Capoot, Ashley. “Tech AI spending is boosting the economy, but many businesses are in survival mode.” CNBC, CNBC, 25 October 2025, https://www.cnbc.com/2025/10/25/ai-spending-is-boosting-the-economy-many-businesses-in-survival-mode.html. Accessed 25 October 2025.
Colello, Brian. After Earnings, Is Nvidia Stock a Buy, a Sell, or Fairly Valued? | Morningstar Europe, 8 September 2025, https://global.morningstar.com/en-nd/stocks/after-earnings-is-nvidia-stock-buy-sell-or-fairly-valued. Accessed 25 October 2025.
“Design and Build Services | GB.” Cushman & Wakefield, https://www.cushmanwakefield.com/en/united-kingdom/services/project-development/design-and-build. Accessed 25 October 2025.