AI is helping patients solve medical mysteries
Patients, doctors and nurses are turning to the technology for help in identifying rare and undiagnosed diseases.
By Alex Janin
Patients with rare diseases often spend five years or more searching for a diagnosis. Now, artificial intelligence is helping some of them get answers faster.
Rachel Hinken long wondered why her son, Oliver, was missing key growth milestones, including speech and walking delays. At age 10, he was not more than four feet tall, and doctors consistently told her he would "catch up". Unconvinced, Hinken uploaded a picture of Oliver into Face2Gene, an AI-assisted app designed to help healthcare professionals identify rare conditions.
The app suggested trichorhinophalangeal syndrome (TRPS), a condition that can cause bone or joint issues leading to pain and movement problems. "I have been a little slackjawed a couple of times by the difference AI has made," said Dr. Sarah Diekman, a specialist in nervous-system disorders. She noted that patients who identified conditions like POTS (postural orthostatic tachycardia syndrome) with the help of AI chatbots are now coming to her within months of their first symptoms, whereas others may have waited 50 years for a diagnosis.
Fidji Simo, the former CEO of Instacart, has also been public about her battle with POTS. She believes today’s AI tools would have helped her get a diagnosis much faster than the nine months it originally took. Simo has used ChatGPT to analyze her whole-genome sequencing results and brainstorm potential tests to discuss with her doctor. She has since founded a new company focused on researching the biological drivers of such conditions.
Patterns and Accuracy
AI is particularly effective at finding patterns, such as links between physical features in medical imaging and descriptions in medical literature. This can be a significant aid in rural or non-specialty clinics where doctors may be encountering a rare disease for the first time.
A study published in a JAMA journal last year found that two AI chatbots correctly suggested the right diagnosis in 13% and 10% of 90 complex rare-disease cases. In comparison, doctors who reviewed the same patients’ medical records suggested the correct diagnosis in only 5.6% of cases.
Real-World Impact at the Clinic
Michael Ames, a nurse practitioner at Mayo Clinic, used an FDA-cleared AI tool to help diagnose Mike Busch, a 77-year-old patient who suspected he had pneumonia. The AI interpreted Busch’s electrocardiogram and suggested a 98% probability of cardiac amyloidosis, a rare and serious heart disease. Further imaging confirmed the diagnosis. “If it wasn’t for AI, I might have been treated for something else,” Busch said. “Maybe I wouldn’t be here, who knows?”.
Limits and Challenges
Despite these successes, doctors caution that the technology has limits. Dr. Xiao P. Peng, a clinical geneticist, noted that AI tools still make mistakes and are currently better at generating leads or translating complex medical jargon than making definitive diagnoses. “For data synthesis, there has to be a manual human role,” she added.
A major hurdle is that AI is only as good as the data it is trained on. Because rare diseases have fewer data points—such as case records and tissue samples—the models can be less accurate than those for common conditions. To address this, Dr. Matthew G. Hanna helped develop ScanVan, a mobile unit that travels to hospitals to pull and digitize archive data to build better AI models.
Industry and Nonprofit Moves
The private sector is increasingly moving into this space:
- Anthropic announced plans to fund biotech research to speed up rare disease diagnosis using its flagship product, Claude.
- Consulting firm ZS built a tool for drugmakers that successfully screened patients for myasthenia gravis, a rare neuromuscular disorder.
- Danielle Carnival, CEO of the Undiagnosed Diseases Network Foundation, noted that while AI can help patients organize records and find specialists, it could also create "more confusion" if it produces information without a clear, accurate path forward.
Why India Inc is retaining more of its profits
By T. Surendar
What’s happening with dividend payouts?
Dividend payouts by BSE 500 companies rose 8.2% year-on-year to ₹5.13 trillion in fiscal year 2026 (FY26) from ₹4.74 trillion paid in the year before. However, the growth in dividend payouts has slowed from 11.9% in FY25 and 9.6% in FY24. More significantly, dividends as a share of net profit fell to 27.6% in FY26 from 30.4% in FY25 and 36.5% in FY23. The ratio is now at its lowest in 12 years, well below its 12-year average of about 35.5%. The record number is, therefore, slightly deceptive: India Inc is paying more dividends in rupee terms, but returning a smaller proportion of the profits it earns overall.
So, have investors got less money?
Not really. Investors received ₹5.13 trillion in dividends in FY26, the highest in the period covered by the analysis. However, the growth in dividends has lagged behind the growth in profits. A company can increase its dividend while reducing its payout ratio if profits grow faster than the dividend. That is what has happened across much of corporate India. The BSE 500 payout ratio fell to 27.6% in FY26 from 30.4% in FY25 and 36.5% in FY23, after touching a high of 50.9% in FY20. Companies are paying shareholders more, but keeping an even bigger share of what they earn.
So, why did firms raise payouts until now?
Partly due to the long absence of a broad-based private sector capex cycle. After the deleveraging cycle of 2013-20, firms spent years fixing balance sheets rather than adding capacity. Even as profits recovered after the pandemic, investment did not quickly follow. According to Ambit Capital, corporate debt-to-equity ratios fell from about 68% in FY20 to 39% in FY25. With subdued risk appetite and capex, firms returned surplus cash via dividends and buybacks. Payouts, thus, reflected not just shareholder friendliness but a lack of robust investment scope.
How are companies using the spare cash?
Some cash is going into capex, buybacks, and stronger balance sheets, but not yet into a broad-based investment boom. An analysis of 3,243 listed firms shows a 13.5% CAGR for FY23-26 capex. Yet, the top 10 corporate houses accounted for about 61% of listed capex. Ambit noted that dividend/buyback was favoured over greenfield expansion amid stagnant capacity use and hazy demand. New projects made for only 15% of GDP versus 35% in FY03-12. Questions remain over whether higher profit retention signals sustained investments.
Which sectors paid out more, and who squeezed?
IT remains among the most generous sectors as its model brings in significant cash without comparable capex requirements. The BSE 500’s top six payers' share was about 26%, with Tata Consultancy Services at 8%. This contrasts with sectors entering an investment cycle: power had a 36% share of new listed capex in FY23-FY26, while auto stood at 9% and telecom at 8%. Capex needs spur profit retention.
Dividend payout as a share of profits (in %)
- 2025-26: 27.6%
- 2024-25: 30.4%
- 2023-24: 30.0%
- 2022-23: 36.5%
- 2021-22: 32.2%
- 2020-21: 40.0%
- 2019-20: 50.9%
- 2018-19: 34.9%
- 2017-18: 40.4%
- 2016-17: 36.6%
- 2015-16: 38.2%
- 2014-15: 34.6%
India at 80: Time to confront the issues it is facing
By Shashi Shekhar
After the Independence Day euphoria, let’s now ponder the complex issues facing the nation. What are they?
Let me take you back to the Uttar Pradesh of the 1960s. My generation was born in this fateful decade. Our democratic values were strengthened after two general elections were held, and many epoch-making initiatives were launched.
The childhood memories of boats plying in the vast expanse of the Ganges are still fresh. Cities, at that time, didn’t have electricity for hours, and most of the villages were without electricity. During this time, India suffered catastrophic droughts and famines.
I have a vivid recollection of ‘ration shops’ that would shut before many in the long queues could secure their ration. In that decade, India and Pakistan got into a war. The exemplary bravery of our soldiers assuaged, to some extent, our deep hurt and ignominy of the defeat at the hands of the Chinese three years before.
Legendary prime minister Jawahar Lal Nehru too passed away during the decade. His successor, Lal Bahadur Shastri, had a short-lived tenure. Indira Gandhi’s ascent was the result of the untimely death of Shastri. The tradition of dynastic politics can be traced to this event. In those times, Dalits couldn’t fetch water from many wells and lakes, and couldn’t ride a horse during their wedding.
Muslims were relatively better placed but were weighed down by the unnecessary guilt of the Partition. The country got its first Muslim president and, till now, the only woman prime minister in the same decade. During the same decade, the impact of other backward castes on the politics of southern states signaled a change in future political equations.
Baby steps were taken in the field of sports, education, technology and science. At the 1960 Rome Olympics, Milkha Singh won hearts, though he failed to secure a medal. It was the golden era of hockey and football. In cricket, India defeated New Zealand under the able leadership of Mansoor Ali Khan Pataudi. It was the time when the Indian Institutes of Management (IIMs) were established. The first rocket was fired from Thumba space centre, and then the Indian Space Research Organisation came into existence and landmark progress was made in nuclear energy, along with the initiation of the historic Green Revolution. Today, India is on its way to becoming an economic superpower, but disparities remain.
Great progress has been made in the field of access to electricity, health and education. But there’s still a wide chasm between government data and the ground reality. We have the world’s largest pool of graduates, but 45% of them are unable to secure jobs commensurate with their degrees.
Even nature seems to be adversely disposed towards us. It’s monsoon season, but 26 rivers in Bihar are almost dry. Reports from Uttarakhand suggest it has lost 25% of its forest cover. On the eve of Independence Day, while I write these lines, 14 people are battling for life, becoming victims of debris flow in a tunnel in Chamoli.
In such times, I am reminded of those small towns where I grew up. Though electricity or tap water wasn’t available in every house, rain didn’t lead to deadly waterlogging either. While villages are emptying out, tier-II and III towns are growing at a breakneck speed.
If we need to maintain our demographic balance, we need to take employment opportunities back to the villages. Like border security, we need to ensure social and environmental security with equal sensitivity. Since the economic liberalization of 1991, we have tried to turn Bharat into ‘India’, leading to growing economic inequality.
But there’s no need for pessimism. We know how to move ahead, breaking the chains of our helplessness and adversities. Many dynasties came and became a part of us. Foreign rule came and went. We learned from everyone and internalized those teachings.
Getting stuck isn’t India or Indianness. Today, those born in the 1960s, now in the sixth decade of their lives, take joy in the fact that we are still a young nation. Opportunities, energy and youth are complementary. But we will start ageing in the next decade. Three decades from now, India will have more older people than young. Are we ready to face that challenge? We’ll need to think about it today. We will have to think about how we can bring along those who are left behind. And how to get rid of those blocking our future progress.
There can be no better use of the initial days of the 80th year of our Independence.
Themes in Modi’s Independence Day speeches over the years
Prime Minister Narendra Modi’s Independence Day speech on Saturday, August 15, 2026, was his 13th such address. Over the years, he has highlighted various topics, showing how key themes have progressed from basic infrastructure to advanced technology.
Toilets to semiconductors
- 2014: “Can’t we just make arrangements for toilets for the dignity of our mothers and sisters?”.
- 2026: In today’s technology-driven era, chips are indispensable for everything from medical equipment to transportation. Bharat has begun establishing its own semiconductor manufacturing capacity to become self-reliant and ensure global systems do not come to a standstill.
Rural roads, satellites, artificial intelligence (AI) and quantum computing
- 2016: Modi noted that rural citizens continued to crave for pucca roads.
- 2018: Indian scientists astonished the world by launching more than 100 satellites in one go.
- 2025: Plans were announced for the Aatmanirbhar Bharat Gaganyaan and building an independent space station.
- 2026: Technology has shifted to the age of AI, quantum technology, robotics, and data centres. India must not merely be a market for the world but must become a hub of innovation.
Fighting poverty
- 2014: Modi argued that if Indians could remove a massive empire without government power or weapons, they could surely defeat poverty.
- 2026: The vision for a developed India requires development to reach the last person. In the last decade, social security cover has expanded from 25 crore to 100 crore people.
Startup India
- 2015: The Prime Minister resolved to launch “Startup India” and “Standup India” to provide strength to new ventures.
- 2016: He called for startups to be initiated in every district and block of the country.
- 2026: Many avenues have opened, with private startups led by young people (average age 28) successfully launching their own satellites and rockets on the first trial.
Manufacturing/technology self-reliance
- 2014: The “Come, Make in India” call was issued for sectors ranging from electronics and automobiles to satellites and submarines.
- 2025: Modi predicted that ‘Made in India’ chips would be available in the market by the end of 2025.
- 2026: India must own the entire value chain, from design to manufacturing, to emerge as a trusted hub in the global supply chain.
Internet connectivity
- 2015: Modi envisioned broadband connecting all villages to allow remote schools to access high-quality education.
- 2026: The number of internet users has increased fourfold, and the goal is now to ensure Made-in-India 6G reaches the entire world.
From bank accounts to UPI and global fintech dominance
- 2015: He noted that 60 years after independence, 40% of the population still lacked bank accounts, with bank doors closed to the poor.
- 2025: India’s UPI platform now handles 50% of the world's real-time transactions, surprising the global community.
Chinese firms open doors for Mahindra's global push
Company’s improved safety ratings, cleaner powertrains expand its addressable markets
By Ayaan Kartik
The rapid expansion of Chinese carmakers could turn out to be an unlikely tailwind for Mahindra & Mahindra Ltd's global ambitions. Their entry into established markets has made consumers more open to newer brands, while Mahindra’s improved safety ratings and cleaner powertrain portfolio are giving it access to markets that were earlier out of reach, according to a top executive.
As the company draws up a list of international markets for expansion, Mahindra’s automotive division chief executive Nalinikanth Gollagunta told Mint that the company is now able to target geographies it earlier couldn't owing to evolving market dynamics. He said that the company’s improved safety ratings and a cleaner powertrain portfolio have expanded its addressable markets, allowing it to meet fuel efficiency regulations and sell both electric vehicles (EV) and internal combustion engine (ICE) vehicles there.
Target Markets
The company has marked out South Africa, the UK, Australia, New Zealand and Latin American countries, including Brazil, as it evaluates an expansion using new pickup trucks and passenger vehicles. On customer appetite, Gollagunta said the success of Chinese brands in a market is an important indicator of whether they are willing to consider newer carmakers.
“The interesting thing we found is that markets that have very established brands today are open, thanks to the Chinese. So, the Chinese have gone in and softened our market,” Gollagunta explained. “If you can look at five Chinese [brands], you can look at one Indian,” he said, adding that some developed markets such as the US are still very restricted.
Over the past few years, Chinese carmakers like BYD, Saic and Chery have entered and expanded across several markets in Africa, South America and Europe.
Strategic Shifts
Mahindra is studying all major markets as assumptions on fuel technologies, safety ratings, and regulations have changed. Gollagunta noted that CAFE (corporate average fuel efficiency) norms make it tough to enter certain markets without a global EV to accompany the lineup. “Now I have a global EV which helps me sell an ICE vehicle,” he said.
The company recently unveiled its new Scorpio Lifestyler pickup truck, which it will use to target South Africa, Australia, New Zealand, and Latin America. Gollagunta stated that Mahindra will look for segments where it can play to its strengths, specifically its "SUV DNA" and technology.
Growth and Consolidation
The group, led by chief executive officer (CEO) Anish Shah, is pursuing a two-pronged strategy for its pickup trucks: expanding in global markets while increasing volumes in the domestic market. In its latest offensive, the company is relying on its own products rather than acquisitions or joint ventures.
Mahindra's export push will also include EVs such as the BE 6 and XEV 9e, along with vehicles built on its new platform, Nu IQ, starting next year. The company also plans to leverage India's free trade agreement with the UK for exports.
While Mahindra rose to the number two position in the Indian market in financial year 2026—replacing Hyundai Motor India—its global footprint in passenger vehicles remains limited. Gollagunta emphasized that the company will extensively study each market before committing to a launch, stating, “If we do it, we want to win”.
Over the past five years, Mahindra has exited several joint ventures and businesses in the commercial and passenger vehicle space, including those with Ssangyong Motors, Mitsubishi Mahindra Agricultural Machinery Co, and Sampo Rosenlew.
Israel strikes Lebanon as US-Iran ceasefire agreement nears end
Israel also continues to clash with Hamas operatives in Gaza in addition to Hezbollah.
By Bloomberg
Lebanon saw its deadliest day of fighting in months as Iran and the US appeared to be at a standstill in negotiations ahead of the Monday expiration of their ceasefire agreement. The Israel Defence Forces (IDF) said on Sunday that it killed Abu Hassan Alaa, a senior Hezbollah commander, in southern Lebanon a day earlier. A total of 11 people died in the Israeli strikes—including several children—making them the deadliest since the sides agreed to a ceasefire at the beginning of June.
Israeli Prime Minister Benjamin Netanyahu stated the strikes were in retaliation for a Hezbollah attack that injured three soldiers early Saturday. Israel further warned on Sunday it would strike the Iranian proxy group again if it felt threatened. The fighting on the periphery of the Iran war may further complicate deadlocked negotiations between Washington and Tehran ahead of the nominal end of their own June ceasefire on Monday; Iran has long argued that Israeli attacks on Lebanon violate the agreement.
Deadlock over the Strait of Hormuz
Central to the stalled talks is control of the Strait of Hormuz, through which a fifth of the world’s oil and gas transited before the war. Iran and Oman appear to be finalizing a “shipping map” to govern traffic in the strait, but the US is not involved in those talks and is unlikely to agree to terms that do not restore free passage. Iranian foreign minister Abbas Araghchi said an agreement with Oman would not necessarily translate into the strait’s reopening and is separate from discussions with the US. Although Iran is in contact with mediators from Qatar and Pakistan, Araghchi stated on Saturday, “We have not yet made a decision to resume negotiations with the US.”
Economic Impact and Attacks on Shipping
The price of Brent crude rose almost 6% last week as a number of vessels were attacked in and around the strait, dashing hopes of a quick resolution to the impasse.
- On Saturday, a projectile struck the hull of a bulk carrier.
- Two Abu Dhabi National Oil Co. vessels were struck while transiting Hormuz on Thursday and Friday.
- These incidents follow roughly 65 confirmed attacks on vessels in the strait since early March, resulting in at least 17 deaths.
President Donald Trump, facing a shortfall of munitions and domestic opposition, is readying new economic measures to force Tehran to capitulate. Trump stated on Friday that he plans to hit Iran’s economy hard and described a US blockade of Iranian ports as a “wall of steel.” He even remarked, “Pretty soon I’ll be declaring the Hormuz Strait a territory of the United States.”
Wider Regional Conflict
The conflict continues to expand as Israel remains engaged with Hamas operatives in Gaza and faces attacks from the Houthis in the Red Sea, both of which are backed by Iran. The clashes between Hezbollah and Israel threaten to derail a US-brokered ceasefire that provides for Hezbollah’s disarmament and the eventual withdrawal of the IDF from occupied territory, to be replaced by the Lebanese army.
Additionally, tensions between Iran and Qatar have surfaced. Iran’s state-run IRNA reported that Doha has barred an Iranian delegation from investigating the fate of three pilots who crashed in Qatar earlier in the war. Qatar has categorically denied these claims, expressing surprise at the “misleading statements” during ongoing de-escalation efforts.
Why South cinema’s biggest stars are flopping
Chasing national scale has alienated local audiences. Can South Indian cinema reset itself?
By Lata Jha
Nobody knew how to react this January when Uppalapati Venkata Suryanarayana Prabhas Raju’s horror comedy, The Raja Saab, hit screens for the big Sankranti weekend. Despite releasing during the most lucrative window in South India, the film, budgeted at over ₹400 crore, opened to empty halls and was considered "dead on arrival," grossing a little over ₹200 crore worldwide. Prabhas, who became a household name after the Baahubali franchise, has suffered a string of recent flops including Radhe Shyam and Adipurush. Fans have criticized his recent work for "lazy" screenplays and a heavy reliance on body doubles.
Prabhas is not alone; the tide is turning for the entire South movie industry. Established stars like Rajinikanth, Kamal Haasan, Chiranjeevi, Ram Charan, Ajith, and Suriya are either failing to deliver previous returns or hitting a box office ceiling. This is a defining moment for a region that has long embraced a strong culture of star worship.
The Pan-India Slowdown
The "pan-India" wave, which sought to monetize Southern films in the Hindi belt, has slowed down. Experts believe the Telugu industry has alienated its loyal home turf by focusing on films designed for Northern audiences. Filmmaker Uma Vangal noted that recent releases by RRR stars Ram Charan (Peddi) and Jr NTR (Devara) both "fizzled out," signaling the end of the pan-India "excursion" due to repetitive products. There is a growing call for stars to return to stories rooted in the cultural context of their own soil.
Attendance and Revenue Trends
Data from Ormax Media reveals a steep drop in theatre attendance across South India in 2025:
- Telugu cinema: Footfalls fell to 181 million, down from 213 million in 2024 and 242 million in 2023.
- Tamil cinema: Experienced a sharper decline of over 15%, dropping to 160 million admissions—its lowest non-pandemic figure since 2016.
- Market Share: Out of ₹13,395 crore made at the domestic box office in 2025, Telugu cinema’s share fell to 18% (from 20% in 2024) and Tamil films fell to 13% (from 15%).
While early 2026 figures show a 22% surge for Telugu cinema, trade experts attribute this to small and mid-budget films rather than major star vehicles.
Barriers to Success
Several factors are deterring audiences:
- High Ticket Pricing: Success in Northern markets pushed distributors to inflate rates in the price-sensitive South. For Pushpa 2: The Rule, prices ranged from ₹500 to ₹3,000, frustrating fans. Average ticket prices in Southern languages rose by over 20% in 2025.
- OTT Windows: Many films are available to stream within four weeks of theatrical release, making the cinema proposition less valuable. Some films, like Peddi, found more "real life" and reach on OTT platforms than in theatres.
- Creative Shifts: Critics argue that stars are trapped in violent, hyper-masculine narratives designed to rival Bollywood "nationalist" films, leading to a lack of regional connect.
The Way Forward
The industry's future may hinge on three key resets:
- Fresh Talent: Success now depends on whether new faces like Pradeep Ranganathan, Dhruv Vikram, and Manikandan can sustain momentum.
- Revenue Sharing: Top stars often command outsized upfront fees exceeding ₹100 crore regardless of performance. There is a push for leading actors to move toward revenue-sharing models to manage rational budgets.
- OTT Standoff: Exhibitors want an eight-week window to protect theatre revenue, while producers argue that delaying digital revenue by a month can make mid-budget films unviable. Experts suggest a tiered arrangement where the window flexes based on the film's scale.
Ultimately, experts believe star power alone is no longer enough; a strong storyline has become the real draw as viewers now have the option to wait for OTT releases.
Seven streams of effort: Modi’s new call to action
OUR VIEW
Successive prime ministers of India have used their Independence Day speech to outline the successes of their respective governments and lay out challenges. In the case of Prime Minister Narendra Modi, his speeches have not only featured important policy announcements, like the Swachh Bharat Mission launched in 2014, but also his government’s vision for the economy and plans to realize it. His address on Saturday unveiled a seven-point agenda to speed up India’s efforts to become a developed country, or Viksit Bharat, by 2047. The “sapta dhaara”—or seven streams—he named are apparently inspired by the “sapta Sindhu,” a reference to seven ancient rivers whose waters held the vital energy for prosperity.
The streams now in focus are:
- The domestic manufacturing sector.
- Agriculture and food processing.
- Technology.
- Gati Shakti—or infrastructure for logistics.
- Self-reliance in defence.
- India’s green and blue economies.
- The country’s soft power.
This emphasis is not new, with some of these areas of focus having been outlined earlier, such as the ‘Make in India’ programme intended to turn the country into a factory for the world. Similarly, the Gati Shakti initiative was launched earlier to overhaul India’s logistics infrastructure—from ports and airports to roads and highways—to help manufacturers compete in all accessible markets. This streamlined list of priorities hints at which way public funds will flow in the years ahead. As open markets like America’s begin to retreat behind tariff walls and globalization suffers geopolitical reversals, India must rely on itself for key enablers of its economic emergence.
The same logic applies to national security and autonomy amid US-China rivalry. In technology and innovation, India’s stakes are high as these increasingly underpin value generation. All this must go with climate action, so the green use of clean energy and blue-sky hunt for new resources assume priority. As for soft power, broadly defined as global influence exerted by everything other than the force of arms, the concept has been gaining salience as a policy aim, with the global promotion of yoga cited as an example.
Other notable initiatives highlighted by Modi include a drive to train 10 million youth in artificial intelligence (AI) and a plan to provide free online coaching for students. While the latter seems like a response to last month’s student protests, the sources suggest the long-term aim must be to improve the formal education system so that third-party coaching is not required at all. Broadly speaking, all seven streams would need tributaries of human talent for them to sparkle, meaning education has a vital role to play in each endeavor.
Dude, where’s my recession? The US economy isn’t in the clear yet
Various factors have helped America defy gloomy predictions but that doesn’t mean the risk of shrunken output has receded.
By Barry Eichengreen
Exhibiting an apparently limitless ability to shrug off bad news, the US economy continues to motor ahead. Real or inflation-adjusted GDP grew at a seasonally adjusted annual rate of 2.1% in the first quarter of this year and, according to an advance estimate from the Bureau of Economic Analysis, by 1.5% in the second quarter. Both figures are close to the US Federal Reserve’s own estimate of the economy’s long-run potential growth rate of 2%.
The economy has appeared resilient despite an exceptional series of adverse shocks, from the April 2025 ‘Liberation Day’ tariffs and ongoing tariff uncertainty to US President Donald Trump’s political attacks on the Fed. Meanwhile, US-China tensions have depressed bilateral trade and investment; the US war against Iran has led to on-again, off-again closures of the Strait of Hormuz and spiking oil prices; and the Russia-Ukraine war has increasingly disrupted Russian energy supplies and refining capacity. Topping it all off, global bond, equity and foreign-exchange markets have suffered multiple shocks just in the past few weeks.
So, what explains the resilience? Although Trump’s Liberation Day tariffs ranged as high as 50%, his administration soon made multiple tariff exceptions, exemptions and reversals, bringing the effective US tariff rate down to 10-15%, on average, over the last year. While not favourable, this lower level is at least manageable. The tariff-related uncertainty has been considerable, of course. An index of trade-policy uncertainty reached its highest level on record after Trump’s Liberation Day press conference. Yet, with an import-to-GDP ratio of only 14%, the US economy was already relatively closed. Whatever the damaging effects of tariff uncertainty, they were always going to be less severe than for more open economies.
Similarly, the share of US imports coming from China has declined to barely 7%, but it had already fallen from over 20% to under 14% in the decade ending in 2024. After surpassing $100 billion at its peak in 2016, Chinese foreign direct investment (FDI) in the US has evaporated completely. Despite these trends, the negative impact on the US economy has been minimized by a rerouting of Chinese exports via Vietnam and Mexico, and by America’s continued success at attracting FDI from other sources, notably Germany and Japan.
Then there is the latest energy shock. Crude oil futures spiked from $60 per barrel at the beginning of 2026 to above $100. They are now in the region of $80 and will continue to fluctuate along with prospects for reopening the Strait of Hormuz. More importantly, the ‘crack spread,’ or the cost difference between crude oil and refined products, has tripled since the start of 2026. Still, the adverse effect has been limited because the US economy is less energy intensive now than in the past, owing to a broader shift in economic activity towards services.
Finally, insofar as these factors have dampened US economic growth, their negative impact has been offset by strong investment in artificial intelligence (AI)-related data centres, software, and research and development, as well as by consumption spending rooted in a robust stock market.
What could possibly go wrong? In a word: everything. Despite court rulings striking down many US tariffs, the tariff threat remains, with Trump invoking it in response to everything from Canadian wildfires to Brazilian elections. Equally, the prospects for reopening the Strait of Hormuz remain uncertain, and US-China tensions are ratcheting up again, with Beijing slapping trade restrictions on dozens of US entities in advance of President Xi Jinping’s upcoming trip to the US.
It is anyone’s guess what will happen after that trip is over. Given reports that the US has expended many of the munitions and strategic resources that it would need to deter China from aggressive action in the South China Sea, an escalation in tensions cannot be ruled out. Although the rise in oil prices has been moderated by drawdowns in Chinese and US petroleum reserves, the US Strategic Petroleum Reserve is now at a 45-year low, and half of what remains cannot be withdrawn without risking a collapse of storage salt caverns.
Above all, there is the potential threat from financial markets. The combination of a richly valued stock market and rising long-term interest rates has historically been a toxic brew. We saw in July how pessimism about the immediate returns to AI-related investments can lead to a sharp drop in AI company share prices, especially when those investments are debt financed and the cost of capital is rising. If the share-price declines resume, the negative wealth effects on consumer spending could be significant.
We also saw how such share-price movements can wrong-foot investors in the same trendy sectors, with ruinous implications when their bets are backed by leverage, and with potentially serious consequences for banks and others providing the credit. Not every financial crash and crisis has been followed by a recession. But they’re the best leading indicator we have.
