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American multinational investment bank and financial services company Jefferies has raised concerns about the shifting global economic power balance and the diminishing financial leverage of the United States under President Donald Trump, primarily due to ongoing tariff policy issues.
The core concern highlighted in the report is America's eroding economic exceptionalism, driven by its massive net international investment deficit and chronic under-saving compared to China. As of end-2024, the U.S. net IIP stood at a record deficit of USD 26.2 trillion (89.9 per cent of GDP), while household savings were only 4.3 per cent of disposable income, far below China's 31.8 per cent. It stated, "A major problem for Donald Trump, as it would be for any US president, is simply that China has the savings, whereas America does not." The report also noted that a sharp sell-off in both the US dollar and Treasury bonds during recent risk-off market moves has raised concerns about the sustainability of the dollar's reserve currency status--a pillar of the United States' financial dominance. Trump's erratic tariff policy reversals, such as temporary exemptions on electronics and a fresh investigation into semiconductors, have only increased investor uncertainty. Jefferies said, "The one real example of American exceptionalism in terms of financial matters remains the ability to print the world's reserve currency. Yet this is precisely what is threatened by last week's risk-off action, in which both the US dollar and the US Treasury bond market sold off in response to US stock market action, which flashed growing recession concerns". The report argued that Trump's tariffs have hurt domestic business sentiment and consumer confidence, pushing the Atlanta Fed to forecast a 1Q25 GDP contraction of 2.2 per cent. Analysts in the report suggest Trump must pivot from protectionism to pro-growth policies like tax cuts and deregulation to regain momentum. It said "Trump revert to a universal, nondiscriminatory 10% import tax, abandon his longstanding tariff and trade war obsessions, and revert to his bullish domestic tax reform and deregulatory agenda. In such an outcome, argued he writer, "his presidency may yet be saved." China, meanwhile, is cementing its manufacturing dominance (32 per cent of global output) and has retaliated with rare earth export curbs--key to U.S. defense systems. The EU's warming ties with Beijing, including talks on EV tariffs, hint at growing divergence from U.S. trade strategy. Jefferies recommends reducing U.S. equity exposure in favor of Europe, China, and India. The report also signals rising investor preference for gold and high-grade corporate bonds over Treasuries, with fears mounting that America's fiscal mismanagement has opened Pandora's box. It said "With US stocks still trading at 19.2x forward earnings, global investors should continue to reduce positions in favour of Europe, China and India". (ANI)
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