The world's hot new trade is "sell America"
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President Trump's whiplash tariffs may have inadvertently achieved his goal of reordering the global economy by inspiring investors to sell U.S. assets and move their money elsewhere.
Why it matters: For decades, the world has invested in America. Now, a global moment of clarity threatens to redirect trillions of dollars of capital inflows and diminish the U.S. in the international economic order.
The big picture: The U.S. receives nearly $2 trillion each year in foreign capital inflows, according to government data — things like investments in businesses and bank lending, but also foreign investors buying U.S. stocks and bonds.
- America's share of global capital flows has nearly doubled from where it was just before the pandemic, to 41%.
Yes, but: Then came the tariffs.
- The U.S. dollar — which should strengthen in a tariff environment, all other things being equal — weakened steadily.
- "This suggests foreigners have been and are continuing to sell U.S. stocks and sending their money elsewhere," write Howard Ward and John Belton, co-chief investment officers of value at Gabelli Funds.
The intrigue: A strong U.S. dollar has been orthodoxy for decades, and investors have counted on knowing the government would act to preserve the greenback as the world's reserve currency.
- But Stephen Miran, the chair of Trump's Council of Economic Advisers, recently gave a speech in which he portrayed the strong dollar as fraught with downsides, denting U.S. competitiveness and labor.
- If the government isn't going to stand as firmly by the dollar, investors may reason it's a good time to look elsewhere, too.
Between the lines: The tariff blowback only accelerates a trend that started not long after Trump took office, with investors preferring foreign markets over the U.S.
- The S&P 500 is one of the world's worst-performing major indices so far this year.
- Look no further than Thursday, when Asian and European shares rallied sharply — and U.S. stocks sank.
- There's also bond market pain, which the White House acknowledged as driving the tariff rollback.
Lurking in the background: The fact that foreign investors hold almost 30% of publicly held U.S. government debt, essentially split between private and state holders.
- "(The) more troubling narrative of late is the notion of what we call a 'sell America Inc.' risk," interest rates strategists at ING wrote this week. "(The) here and now is painting Treasuries as a tainted product, and that's not comfortable territory."
The other side: For all the anxiety, the U.S. economy is still the world's largest and remains attractive to plenty of investors.
- An auction of 10-year U.S. Treasury bonds Wednesday was met with slightly better-than-normal demand, even amid the global chaos.
- Billions of dollars are still pouring into the United States to build new auto factories, data centers, and the like.
What to watch: Whether this was a blip, or the start of a fundamental shift in the way the world views investing in America.
