Trump’s top-down economic agenda needs bottom-up perspective
Shaking the foundations of regional growth
The Trump administration’s primary economic goals of reshoring production, rebalancing exports, and winning the industries of the future should be music to the ears of the nation’s economic development practitioners. In practice, however, the policy tremors emanating from Washington are shaking the regional foundations of the very economy the President hopes to build.
First came the funding freezes, threatening to choke off vital resources for research and innovation. Next came tariffs, which jeopardize the imports and exports that drive regional prosperity. And now the proposed dismantling of the U.S. Economic Development Administration (EDA) signals an intent to withdraw traditional federal support from local economic development almost completely.
One hundred and twenty days in, the dispatch from the ground is clear: The Administration’s top-down economic agenda needs to be suffused with some bottom-up perspective on how strong regions — and through them, a strong nation — are built.
Potential allies?
The President would find the field of economic development sympathetic to key elements of his worldview. Trained in cluster theory, most economic developers would agree that, for all the benefits of globalization, the United States also lost something important when high-end value chains once rooted domestically were scattered across the globe.1 The nation has had to relearn that the production process itself is a catalyst for innovation and source of competitive advantage.
Economic developers have their gripes with U.S. trade policy, too. Mainstream economics long focused on the macro (trade imbalances) and the micro (individual businesses and consumers) but overlooked the meso, or regional scale of labor markets and production networks. The “China Shock” body of work successfully flipped the script. Finally, there is widespread understanding that, because of their unique industrial mixes, regions are the scale at which trade policy comes to ground.
Economic developers would also find common ground with the President in recognizing that Americans identify as both consumers and producers. Communities, like people, derive a large part of their identity from what they produce. Incomplete or failed industrial transitions are therefore social problems in addition to economic ones.
And of course, economic developers love a good ribbon-cutting too.
But even if there is basic agreement around the ends, the means with which the White House is going about transforming the American economy will in fact make it harder for regions to develop and grow.
EDA: The bridge between federal intent and local action
Since the 1960s, the federal government has partnered with communities to support their economic development through the EDA. With modest resources — EDA’s budget stood at $464 million in FY2024 (around 0.02% of total discretionary spending) — the federal government empowers the development and execution of local growth strategies nationwide. Eliminating the only federal agency solely dedicated to economic development, as proposed in the President’s FY2026 budget, would devastate many localities’ ability to invest in their own future and undermine the Administration’s own economic goals.
For starters, EDA inspires local action. Its competitive grant programs incentivize communities to come up with the best ideas to achieve a goal — be it to improve tech-based workforce development or enhance regional resilience to economic shocks.
Take the new Tech Hubs program, launched with bipartisan-backing as the regional plank of the CHIPS and Science Act. The competition motivated nearly 400 regions to submit their best strategies for cementing American competitiveness and security in the technologies of the future.2 Such programs tap into Americans’ competitive zeal and can bring forth surges of civic entrepreneurship. Each administration can put its own imprint on such programs by setting the goals and shaping the application criteria.
EDA also serves as a delivery mechanism for key funding streams that support the President’s economic agenda. The Department of Labor administers Trade Adjustment Assistance for workers, but trade adjustment assistance to help firms and regions rebound from trade-related job losses is delivered through EDA.3 EDA’s core programs help communities navigate military base closures, power plant decommissions, and other economic shocks to smooth the transition to new industries. Its Economic Adjustment Assistance program is a swiss army knife of responsive support tailored to local circumstances. Few federal programs are as adaptable.
EDA also serves as a capacity builder. If the Administration’s envisioned future (with a dramatically diminished federal presence in the economy) is not to be one of widening regional inequality, communities will need to be able to fend for themselves. EDA’s planning and technical assistance grants help level the playing field. For small population communities, federal support in the form of EDA planning grants can make the difference between having a professional economic development organization and not.
EDA itself is a policy incubator. It serves as a uniquely flexible and remarkably experimentative corner of the federal government. EDA has emerged as the regional arm of American industrial policy. When disasters strike, Congress pushes long-term economic recovery dollars through EDA. When the federal government wishes to pilot new industry-aligned models of workforce development, it goes through EDA. EDA programs have been instrumental at critical junctures in the lives of some of the most innovative and entrepreneurial new economic development organizations to emerge in recent years — including around Opportunity Zones, demonstrating how EDA’s capacity-building programs can complement signature administration initiatives.
In a testament to EDA’s utility — and to how out of step the President’s proposal is with the bipartisan policy consensus that regards EDA as more valuable today than ever — Congress finally reauthorized the agency in January. The legislation passed 399-18 in the House and 97-1 in the Senate and empowered EDA with a whole new set of tools and authorities that this President can be the first to deploy.
To be sure, the nation’s economic development apparatus could use a healthy dose of disruption. Duplication across agencies and programs is a long-standing concern. Evaluation should be more rigorous. Too much federal economic development spending supports talking instead of doing. Strategic ambivalence between concentrating public investment in a few places versus distributing it widely plagues too many programs. But those challenges call for smart reforms, not wholesale elimination.4
That shaking feeling
The proposal to shut down EDA is the clearest signal yet that the Trump administration plans to jettison the federal government’s long-standing commitment to being a supportive partner in local economic development. But worse than a partner who moves on is one who actively undermines, and the President’s actions are simultaneously placing the two most fundamental pillars of economic development under strain: traded sectors and anchor institutions.
Traded sectors are the means by which regions earn their incomes: they power local economies by producing goods or services that get consumed (sold) outside the region, bringing money into it. Paying high wages, their strong multipliers make them engines of local job growth.
Sustaining and growing traded sectors is in many ways the very essence of economic development. These traded sectors are intricately woven into global supply chains. That makes them highly dependent on imports and highly vulnerable to export retaliation. A few regions may score new investments induced by tariffs to U.S. shores; more will likely emerge with weakened firms and dried up export opportunities. The inescapable economics of tariffs — concentrated winners; diffuse losers — applies at the regional scale, too.
Universities are the quintessential anchor institutions — those trusty stalwarts of economic development that prime local innovation ecosystems, invest heavily in their communities, and serve as stable sources of good jobs. Yet universities must now contend with massive uncertainty around the fate of science and innovation-related funding administered by the National Institutes of Health, the National Science Foundation, and other agencies. Even seemingly arcane changes such as the proposed cap on the amount of facilities and administration costs the federal government will reimburse threaten to upend how the country finances its R&D infrastructure.
Regarded from the bottom-up, anchor institutions are precious assets. They are key sources of the competitive advantage that local economic development so assiduously seeks to cultivate. Assets sometimes underperform, of course, and many regions likely share the White House’s desire to get more out of them: more research, more innovation, more startups — and all of it faster. Smart federal efforts to invest differently, revisit incentive structures, and shake up sclerotic bureaucracies would likely be welcomed. But invest less? Viewed from the bottom up, such a move serves no local purpose. In fact, it would be economic development malpractice.
The regional foundations of national prosperity
A cardinal rule of economic development is to build on strengths. Coming off an historic period of legislating, the Trump administration inherits the most robust federal economic development apparatus — the most flexible and innovative tools with the most substantial funding authorizations and most activated network of local partners — of any President in recent history. The industries of tomorrow will be forged in the places where workers, firms, and ideas come together. In his drive to transform the U.S. economy, the President should take a moment to study what makes its regional economic engines tick.
Kenan Fikri is a senior fellow at the Economic Innovation Group. Until recently, he served as the inaugural director of the Regional Economic Research Initiative at the U.S. Department of Commerce. He has nearly two decades experience in economic development and a masters degree in Local Economic Development from the London School of Economics.
It’s a testament to the enduring economic logic of industry clusters that the same basic geographic configuration would reemerge overseas. Geographic specialization now underpins China’s industrial might, as its deep networks of suppliers and customers derive competitive advantage from specializing locally, too.
The Recompete Pilot Program is another new competitive grant program authorized in the CHIPS and Science Act that speaks directly to Administration priorities: closing the prime-age employment gap in left-behind areas such as Eastern Kentucky or formerly industrial cities such as Allentown, PA.
The Trade Adjustment Assistance for Firms program expired in July 2022 and is no longer accepting new applications for assistance; Economic Adjustment Assistance for regions is ongoing. It’s worth reflecting on the extent to which the China Shock itself might have been mitigated had the federal government identified and responded to the crisis with increased TAAF and EAA support in real time.
This discussion has focused on EDA, but the principles apply across federal agencies supporting economic development and innovation. For example, there is no shortage of proposals to reform the National Science Foundation or the National Institutes of Health that would have a far more constructive impact on American innovation than dramatically curtailing their grantmaking or cutting their funding.