When the world sells America
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Illustration: Sarah Grillo/Axios
When the rest of the world no longer finds U.S. assets attractive, it starts selling, not over a matter of days but over years.
Why it matters: That's why the falls we've seen in the stock and bond markets, as well as the dollar, could be the start of a long-term trend.
The big picture: What we're seeing in 2025 is setting itself up to be the Reagan revolution in reverse, says David Rolley, a portfolio manager at Loomis Sayles.
- President Reagan stimulated the economy with tax cuts, which attracted foreign investors who were broadly underweight the U.S. at the time.
- President Trump, by contrast, announced a massive tax hike (tariffs are taxes paid by U.S. importers), while foreign investors are now overweight in U.S. assets in the wake of a decades-long bull market in both bonds and stocks.
Follow the money: In 2024, foreigners owned 17.8% of the shares traded on U.S. stock markets, per the Federal Reserve, an investment of $16.5 trillion.
- Compare that to 1980, when foreign shareholdings came to just $75 billion, or a mere 5% of the total market. Overall, foreign holdings of U.S. financial assets rose from 7.9% of the total in 1980 to 14.9% in 2024.
Between the lines: Historically, America's greatest export has been its debt.
- U.S. corporations, alongside the U.S. Treasury, issue trillions of dollars of debt every year, much of which is snapped up by foreign investors at very attractive rates to the borrowers.
- That money is invested in the U.S. economy, where it generates returns far greater than the cost of servicing the debt. That is one of the main reasons the U.S. economy has outperformed the rest of the developed world over many decades.
- Economists call that flow of money into America the "capital account surplus." It's the mirror image of the trade deficit. If our trade deficit falls, our ability to get the rest of the world to finance our growth will also fall.
How it works: Most of the time, tariffs tend to result in a stronger currency, as Axios' Emily Peck has explained, a result of fewer dollars being sold to buy foreign goods.
- Those trade flows, however, are much smaller than portfolio flows. So if international investors lose faith in the U.S., sell their American financial assets, and convert those dollars back to their local currency, the effect of that could easily dwarf the effects of tariffs.
The bottom line: If the rest of the world loses faith in the U.S. as an attractive place to invest, that will drive down stock prices and the dollar, and drive up interest rates, including mortgage rates.
