Despite waves of volatility, markets have remained essentially flat since President Trump’s second term started — largely because traders have learned that he typically backs down from his most destructive policies after Wall Street forces his hand. But while investors have reacted rationally to Trump’s acute economic threats, particularly his tariffs, by driving rapid market downturns, they are irrationally ignoring the far more devastating long-term assault his administration is waging against America’s research ecosystem.
The result is that markets are severely underpricing the full cost of the economic headwinds that lie ahead.
The Trump administration has terminated billions in funding for the National Institutes of Health and the National Science Foundation. Trump’s 2026 budget seeks to go even further, calling for a combined $23 billion in cuts to these two research institutions alone. He has also waged war against our most prominent research universities by revoking billions in federal funds. Meanwhile, the “big, beautiful” budget bill that Trump just signed drastically increases the tax on university endowments.
Yet markets continue to trade near all-time highs, suggesting investors either don’t understand the economic implications of these attacks or that they assume, incorrectly, that the effects can be easily reversed when the political winds eventually shift.
The market’s mistake becomes clearer when examining what these research cuts actually represent. This isn’t trimming bureaucratic fat — it’s halting multi-year scientific studies midstream, terminating the careers of researchers at peak productivity and severing the talent pipelines that have fed U.S. technological superiority for decades.
Republicans fail to recognize that America’s post-war economic dominance wasn’t built on military spending and infrastructure alone; it also relied on the federal government’s sustained commitment to funding research, especially at universities. Technologies ranging from the internet to GPS to mRNA vaccines emerged from the economic ecosystem that this investment built. Crippling higher education, as Republicans have become intent on doing for years, represents the economic equivalent of Tom Brady purposely cutting a few fingers off of his throwing hand.
The administration’s assault on innovation extends beyond funding cuts — it is also actively chasing away the talent that drives technological progress. Secretary of State Marco Rubio’s announcement that the U.S. would begin to “aggressively” revoke visas for Chinese students and the administration’s attempt to prevent Harvard from enrolling any international students exemplify this destructive behavior.
The economic damage this xenophobic rhetoric and action is causing runs far deeper than the lost tuition revenue universities will see as enrollments from abroad sink. We are driving the next generation of top-tier scientists into the arms of our competition, costing us the fruits of their intellectual labor in the decades to come.
Governments around the world have already begun to take advantage of America’s mistakes. Foreign universities have launched recruitment programs specifically targeting scientists in the U.S., advertising sanctuary for researchers facing funding cuts. The brain drain that had worked in our favor for decades is rapidly reversing.
When the next Democratic administration attempts to restore research funding, it will find a significantly degraded landscape. Senior scientists will have moved abroad, graduate programs will have shut down, international collaborations will have formed around other partners and America’s reputational damage will have a stench that will likely never quite wash off.
Wall Street seems to assume that research can simply be turned on and off like a spigot, but scientific progress doesn’t work that way. Breaking up research teams, halting long-term studies and driving away international talent creates permanent setbacks.
With markets holding steady in the face of this reality, we can see a massive mispricing of the innovation risk America faces. While investors focus on quarterly earnings and immediate policy effects, they’re ignoring the deterioration of a primary driver of long-term U.S. economic growth in the form of technological progress. Companies may continue reporting strong profits in the near term, but they’re doing so as the research pipeline that feeds future innovations slowly closes.
The warning signs are already visible to those looking for them. Savvy investors should position portfolios for an impending and prolonged innovation slowdown. Industries dependent on cutting-edge research — biotechnology, clean energy, advanced manufacturing — face headwinds that current valuations simply don’t reflect. Meanwhile, countries maintaining or expanding research investments — particularly China, which already leads in several critical technology areas — will capture innovations that once would have emerged from American labs.
The Trump administration’s defenders argue that private industry can replace government research funding, but this fundamentally misunderstands how innovation works and ignores the proven model of success that made America great in the first place.
Nicholas Creel is an associate professor of business law at Georgia College and State University. The views expressed here do not necessarily reflect those of his employer or any other organization.
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