The US has long been economically “exceptional”, with its high growth rate, dominant technology companies, and as the provider of the global safe asset and reserve currency. However, Trump’s tariffs, a possible growth slowdown, and deeper institutional disfunction, could all endanger aspects of this. Is the US becoming a structurally less attractive destination for capital, and is the global dollar standard over?
Some key discussion points:
- Deteriorating economic growth: The near-term US economic growth outlook is deteriorating, with forecasts being downgraded. We expect the US to grow by only 1.3% in 2025, which is a significant decline from previous years.
- Structural decline in attractiveness for capital: The US may be becoming a structurally less attractive destination for capital due to increasing protectionism, which leads to lower potential growth. Policy uncertainty, especially under the current administration, could also contribute to this decline.
- Erosion of corporate ‘moats’: The durable competitive advantages of large US firms, particularly in technology, are being challenged. Developments such as the Chinese AI model, Deepseek, show that US corporate moats may be shallower than previously thought.
- Threats to reserve currency status: The US dollar and US Treasuries' status as the global reserve currency and safe asset may be under threat. Policy uncertainty and the potential for profound change in the US Treasury market could erode this status.
- Challenges to central bank independence: Increasing threats to the Federal Reserve's independence, including potential interference in monetary policy, could undermine the institutional architecture that supports US exceptionalism.