Donald Trump’s second presidential term has brought historic change, including at least one new development Trump can’t be happy about: the “sell America” trade.
At the start of Trump’s term, Wall Street boasted of “US exceptionalism” amid the lure of tax cuts and deregulation. But that fizzled after Trump started rolling out tariffs far stiffer than most people expected, stoking reinflation fears and raising recession odds.
Then came an alarming April sell-off in which investors ditched US stocks and bonds at the same time, generally fleeing American assets. That rarely happens. Normally, money flows between US stocks and bonds as investors perceive rising or falling risk. But this time, they saw risk in all American assets.
Markets have recovered as Trump has withdrawn some tariffs and started to make a few trade deals. But the whipsawing is likely to continue as Trump’s trade war deescalates and reescalates. The biggest risk is China, now facing 145% tariffs on many imports, a tax so high that goods shipments have basically stopped. American shoppers face sharp price hikes and product shortages once current inventories run out.
Read more: What Trump’s tariffs mean for the economy and your wallet
Many investors remain dismayed by Trump’s trade war, which has disrupted a roaring bull market for no obvious gain. Yet a potent sense of optimism about the US economy and American assets remains.
“The United States is still the world’s leading economy, and this is the greatest capital market in the world,” Citigroup (C) CEO Jane Fraser said at the recent Milken Institute Global Conference in Beverly Hills, Calif. “Show me the alternative.”
This year’s Milken conference, featuring some of the most prominent people in business and finance, was a split-screen debate over the perils of Trump’s protectionism versus America’s innate advantages. Concern about the punishing cost of tariffs is widespread. Yet even a diminished America may outshine its competitors.
“I believe the US is still the best risk-reward, globally speaking,” Waleed Al Mokarrab Al Muhairi, deputy group CEO of Mubadala, one of Abu Dhabi’s sovereign wealth funds, said at the conference. “Forty-two percent of our portfolio is in the United States. That’s over $100 billion. I don’t foresee that changing. Most of the best companies in the world are in the US. We’re going to keep investing.”
Read more: The latest news and updates on Trump’s tariffs
Treasury Secretary Scott Bessent kicked off this year’s Milken conference by laying out Trump’s overall economic agenda, including deregulation and tax cuts, in addition to tariffs. He described the US economy as “antifragile,” or resistant to stress.
Attendees generally applauded Bessent’s message. “It’s true the US economy is antifragile,” Harvard historian Niall Ferguson said. “That implies the trade wars are a kind of shock the country will be able to power through.”
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On the plus side of America’s ledger are longstanding advantages, plus some new ones. The US remains a hotbed of entrepreneurship and innovation, thanks to a strong higher education system, tolerance for risk-taking, readily available capital, and legal predictability. Abundant energy is a boon for old-fashioned factories and newfangled data centers. Trump’s deregulatory push could help boost investment returns. And artificial intelligence could be a bigger boost to productivity than the entire digital revolution so far.
On the negative side are Trump’s tariffs, which for now are squelching investment. Those tariffs also give Trump the ability to exempt favored companies from import taxes, which is a drift toward crony capitalism, as billionaire investor Ken Griffin pointed out. Trump, meanwhile, has also targeted some businesses for retribution in ways that could undermine trust in the fairness of the US legal system.
The biggest negative of all may be the mushrooming federal debt, which has gotten so large that it may now factor into investor decisions on whether to buy or sell US Treasury securities. “We’ve got to get at the spending, we’ve got to reduce the debt,” BlackRock head of global allocation investments Rick Rieder said. “Countries are reducing the amount of Treasury debt they hold and it’s a really dangerous paradigm.”
If there were another large and dynamic capitalist economy that embraced free trade and had its fiscal priorities straight, it might be eating America’s lunch. But there isn’t one.
Europe remains a collection of low-growth social welfare states that lack the depth of US capital markets. President Xi Jinping of China manages a giant and still-promising economy, but his statist control and militarism worry investors. Countries such as India, Brazil, and several Middle East nations offer appealing pockets of opportunity, but not nationwide.
Meanwhile, despite some wobbles, the US dollar remains the world’s reserve currency, which conveys the famous “exorbitant privilege” on Americans and people who invest in the US. That could change if Trump’s economic agenda goes completely rogue, as some analysts worry about. But people who know Trump say that won’t happen.
“The administration understands the importance of the dollar being the reserve currency,” Steven Mnuchin, who was Treasury secretary during Trump’s first presidency, said in Beverly Hills. “For the foreseeable future, there really is no alternative currency.”
The recurring theme is obvious: The US is kind of messed up, but everybody else is worse. That doesn’t make the greatest sales pitch, but sometimes winning means you just have to be better than the competition.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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