The recent Wall Street gains have not stopped investors from doubting the future supremacy of U.S. financial markets. The Trump administration’s new wave of steep tariffs has created negative market sentiment which erased the positive feelings generated by recent trade agreements with the EU, Japan and South Korea.
The dollar has depreciated by 8% this year and the expanding federal deficit has made U.S. assets less attractive to investors. The concept of “American exceptionalism” which relied on the nation’s solid institutions and extensive capital markets now faces challenges because of protectionist policies that create uncertainty.
The latest tariffs imposed by Trump on dozens of trading partners including Canada, Brazil, India and Taiwan triggered a worldwide decline in stock prices. The recent policy changes have led portfolio managers to reassess their investments in U.S. assets.
The CoreData survey of institutional investors who manage $5 trillion in assets revealed that 47% intend to decrease their long-term U.S. investments while expanding their investments in Europe, China and emerging markets. The perception of U.S. markets as a safe haven completely changed since two years ago.
Lori Heinel from State Street Global Advisors explained that America’s increasing debt levels together with its unpredictable trade policies decrease the attractiveness of its assets. The market decline on Friday demonstrates these concerns because new tariffs combined with poor labor statistics indicate additional challenges for the U.S. economy and investor confidence.
