Back in the ring: Trump vs. Harvard (again)

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The White House renewed its assault on American higher education this week, threatening to cut more than $3bn in federal funding to Harvard and pledging to “aggressively revoke” visas for Chinese and Hong Kong nationals studying in the US. The moves represent a dramatic escalation of Donald Trump’s campaign against elite US schools, having already proposed more than $5bn in cuts over what he claims is a woke and un-American academic culture, most notably related to pro-Palestinian demonstrations on campuses. 

Trump’s war on US universities is a major own-goal. It undermines the financial stability and research prowess that forms the foundation of American academic and scientific leadership. Direct funding cuts and the potential revocation to their tax exempt status threatens universities’ ability to conduct critical research and educate the country’s future leaders and innovators. 

Despite their large endowments, US elite schools are highly dependent on government support - federal and state funding accounted for 16% of Harvard’s revenue last year, while Northwestern received 28% of its funding from government grants and contracts. The US federal government is the largest source of research and development financing more broadly, accounting for 54.8% of the $108.8 billion spent on R&D by US higher education institutions in 2023 (we wrote about this in detail a few weeks ago, check it out here). 

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Barring foreign students from enrolling at these schools significantly exacerbates this funding issue. International students are a major source of revenue for top US schools, contributing $903 million to Columbia and $576 million to UC Berkeley in 2023. 

Source: Wall Street Journal

However, the decision to target China specifically is particularly damaging. Chinese students represent around 25% of the US international student body. This is even more acute at elite schools: they represent 47% of international students at Columbia and 50% of international students at Cornell.

Source: Open Doors International Students Data

And it's not just the school fees themselves that matter. Foreign governments are a big source of funding for US higher education and research, spending more than $50bn on publicly disclosed grants and contracts over the last decade. 

Source: Network Contagion Research Institute (via the Free Press)

China has grown to be the second largest spender on these grants and contracts, spending $2.3bn in the last three years. Arbitrarily revoking visas for Chinese students and academics and banning their enrollment at top schools will likely cut off this key revenue stream. 

Source: Network Contagion Research Institute (via the Free Press)

But the damage goes beyond school fees and donations. Even before Deepseek put the spotlight on China’s tech ambitions in January, the country was already a leading global player in research and innovation. China exceeds the US in published research output in plant and animal sciences, agricultural sciences and pharmacology, and accounts for 40% of all articles and reviews in technology journals, according to consultancy Clarivate. It overtook the US in its share of the world’s most cited academic papers in 2020, according to the Nature Index, which tracks scientific research output. And 8 of the top 10 global institutions on the Nature Index were in China, with only Harvard and MIT breaking in from the rest of the world.

Source: Nature

Academic decoupling between the US and China will be a huge blow to research collaboration between the world’s two largest economies. Despite political tensions between the two countries, one third of US papers in telecommunications and around 25% in other technology fields over the last decade featured a co-author from a Chinese institution. Ending the academic exchange between Chinese and American schools in the name of national security will badly damage US capacity for innovation in critical fields in the long run. 

It is one of the great ironies of the Trump administration that in seeking to counter the CCP, it increasingly resembles it. His threats to sever US academia from the outside world are arbitrary and politically motivated, and will destabilize some of the country’s most important institutions and tarnish America’s global image as a place of free ideas and debate. America’s prosperity is built on the free flow of human capital, not on manufacturing and protectionism. By taking on US universities, he risks killing the goose that lays America’s golden egg. 

The TACO Trade and an inconvenient court ruling

Donald Trump’s haphazard trade policy took two blows this week, from different ends of the US financial order. At one end, Trump found himself humiliated by the emergence of a Wall Street acronym: the ‘TACO’ trade (Trump Always Chickens Out). The president’s repeated tariff U-turns have given rise to a new trading strategy:

1. White House announces sweeping, economically damaging trade policy

2. Markets in general sell-off, but TACO investors pile-in and ‘buy the dip’ on the assumption that Trump will eventually reverse course.

3. Market turmoil, particularly in bonds, causes Trump to get hold feet and shelve his tariff proposal. 

4. Markets rally and TACO investors sell their positions at a handsome profit. 

Being branded a “chicken” by financial markets will no doubt irk the president (he has already lashed out at “nasty” questions from journalists on the TACO trade), the bigger challenge came from the US Court of International Trade, which ruled on Wednesday that Trump could not use emergency powers to impose sweeping tariffs on US trade partners. The court ruling was based on two main points:

1. The International Emergency Economic Powers Act does not grant the president “unbounded authority” to impose such high tariffs on so many countries

2. The tariffs do not resolve the ‘emergencies’ they are predicated on, namely the opioid crisis or illegal immigration at the US-Mexico border. 

While a federal appeals court gave the administration a temporary reprieve on Thursday, the ruling significantly complicates Trump’s position in ongoing trade talks with key partners such as the EU and Japan. If Trump does not have the legal authority to actually follow through on his threats, other countries may feel they can dig in and give away fewer concessions in trade talks. Teflon Don has, of course, suffered his fair share of legal setbacks over the years, but his signature ‘tariff first, ask questions later’ economic policy is increasingly in jeopardy.