Why are certain bacterial genomes so small and compact? The adaptive genome streamlining hypothesis posits that selection acts to reduce genome size because of the metabolic burden of replicating DNA. To reveal the impact of genome streamlining on cellular traits, we reduced the Escherichia coli genome by up to 20% by deleting regions which have been repeatedly subjects of horizontal transfer in nature. Unexpectedly, horizontally transferred genes not only confer utilization of specific nutrients and elevate tolerance to stresses, but also allow efficient usage of resources to build new cells, and hence influence fitness in routine and stressful environments alike. Genome reduction affected fitness not only by gene loss, but also by induction of a general stress response. Finally, we failed to find evidence that the advantage of smaller genomes would be due to a reduced metabolic burden of replicating DNA or a link with smaller cell size. We conclude that as the potential energetic benefit gained by deletion of short genomic segments is vanishingly small compared with the deleterious side effects of these deletions, selection for reduced DNA synthesis costs is unlikely to shape the evolution of small genomes.