I have made no secret of my dislike of patent monopolies. I consider them a very inefficient way to finance investment, which invites waste and fraud. I prefer alternative mechanisms, most importantly direct public funding, which can be parceled out to private companies in various manners. 

Nonetheless, in a country that relies on patents to finance much of its research and development, a sharp decline in patent applications is bad news.

That is what we saw in 2025 when patent applications fell by 9.0 percent. Interestingly, the top two companies filing for patents, Samsung and TSMC, are both foreign, headquartered in South Korea and Taiwan, respectively. Huawei, the Chinese tech giant, placed fourth, with Qualcomm being the only US company to break the top five. 

There are two important points to be made about these data, both having to do with the long-term impact of Trump’s policies. To date, most attention has been focused on the short-term impact. Tariffs raise the price of goods we import, meaning higher prices to manufacturers for foreign inputs and higher prices to consumers for a wide range of products that we currently import.

The deportation policies have caused labor shortages in many places and have slowed the rate of job creation to at best a trickle. It may actually be negative when we get benchmark revisions to jobs data in February.

The cuts to the federal budget have directly led to a reduction of federal employment of more than 200,000. More jobs have also been lost in the private sector as a result of grants and contracts being curtailed or ended. And job growth in the state and local government has also slowed, as federal funding has been sharply reduced in many areas.

In addition, cuts in federal research funding have crimped research budgets at universities and other institutions. This has curtailed research in many areas. The short-term impact is fewer jobs and less income in these sectors. 

But many of us have warned of a long-term impact: less funding for research will mean less innovation. Promising researchers will give up careers in their chosen fields and instead look to support themselves elsewhere. If Trump and his followers stay in power, maybe they will all turn to crypto scams. 

The effect of these funding cuts is amplified by tightening immigration and visa rules. The changes in these areas make it more difficult for many foreign researchers to come to the United States and make the United States a less desirable location even for those who have the legal option to stay. There have been many stories of prominent researchers who have the left the United States for Canada, Europe, China or elsewhere.

In the long-term the loss of researchers will mean less innovation, fewer jobs, and lower living standards. But this was supposed to be a long-term story. It is striking to see some clear evidence of an impact in Trump’s first year in office.

In general, the number of patents approved increases year by year, a 9 percent decline is extraordinary. Perhaps other factors contributed to the fall (the government shutdown is an obvious candidate), but the drop is still striking.

It also is worth highlighting the extent to which foreign companies top the charts in patent grants. This is another illustration of how the United States economy is integrated with the rest of the world. 

The fact that a patent is granted here doesn’t mean that the research was done here or that a product is produced here, but it does speak to the volume of innovation being supported by foreign companies. In principle we would want an open door to foreign researchers to maximize the extent to which US researchers can take part in the research and make the country better positioned to fully benefit from the outcomes.

The policies of the Trump administration, which seem designed to deliberately harass foreign students and researchers, will inevitably reduce opportunities for sharing in this innovation. This will result in fewer domestically originated patents in future years.

The Imagined Crisis: China Running Out of People

I couldn’t resist making some comment on this New York Times article with the subhead, “China’s population fell for a fourth straight year and its birthrate tumbled as policymakers failed to slow a demographic crisis.” It is a bit mindboggling on how we can have concerns about AI destroying all the jobs side-by-side with articles about how declining birth rates mean we will be running out of workers. 

It should be clear that these concerns are 180 degrees at odds. It is like going to a doctor and having them tell you that you are seriously overweight and you need to put on a few pounds. One or the other can in principle be true, but they cannot both be true.

To carry the story a step further, the running out of workers story is one of shortages and scarcity. The idea is that the aging population is making demands on the economy which it is unable to meet, it doesn’t have enough workers. The AI story is one of abundance. We can produce all the stuff we want without even fully utilizing the available workforce. 

For what it’s worth, China is clearly facing the second situation at the moment. Its economy is producing far more than enough to meet domestic demand. That is why it has an enormous trade surplus with the rest of the world. 

China’s abundance problem can be solved by simply having the government spend more money on things like better pensions, healthcare, and improving housing in the countryside. But apart from the specifics of the solutions, a declining workforce reduces the problem of oversupply. 

It is possible that 20 years or so from now China’s situation will have changed enough so that its economy really is facing shortages, but that is world apart from where the country is now. It is some very serious editorializing in the sub-headline, unsupported by evidence, to describe its current low birth rate as amounting to a “demographic crisis.”