A new $250 bill has been proposed to celebrate America's upcoming semi-quincentennial, and Donald Trump has a plan to put his face on it. This might be easy to dismiss as yet another example of his overblown ego. But that would be a mistake. If Trump goes ahead, it could undermine faith in what remains the world's reserve currency at the worst possible time.

Trump's allies in Congress have already introduced a law that allows for an exception to the existing rules that no living president can appear on American banknotes. Designs have apparently already been commissioned from the Bureau of Engraving and Printing, which designs dollar bills. There are still plenty of obstacles in the way. The legislation still has to be passed for one, which is never easy, even with a Republican majority in Congress. But even if it doesn't happen, or is delayed beyond the main celebrations, Trump has already decided to become the first living president to add his signature to the notes. What used to be American money is steadily being turned into Trump money.

Trump's $250 bill could undermine the dollar's credibility

That may seem harmless enough. Trump loves the limelight, and what's a few pictures on the banknotes? In Britain, we have always been happy to have the monarch on notes and coins, and the same is true in many other countries. It is not as if we use cash as much anymore, and it is hard to imagine many people will be using the $250 note regularly. But in reality, this is a symptom of something far more serious – a warning sign about the underlying strength of the dollar.

There is a reason central banks have always put weighty historical motifs on their notes. The British have the likes of Winston Churchill and the Duke of Wellington. The European Central Bank has never managed to agree on any real people or buildings – since one member or another would end up taking offence – but has done the best it can with synthesised images of historic building styles. The Bank of Japan has a selection of famous scientists from the country's history. All over the world, central banks choose an image everyone can feel proud of.

There is a logic to that. Paper money is basically a conjuring trick. It is only worth something because we all accept it is worth something, and we are willing to exchange it for goods and services. Reaching into a nation's past is one way of establishing its credibility. It gives paper money an air of tradition and solidity. Without that, there is a real risk people might start thinking it is just a few brightly coloured pieces of paper.

King Dollar is under attack

This is the worst possible time to start taking risks with the US currency. The challenges to the dollar have been growing stronger all the time. The US budget deficits are out of control, running at 6% of GDP even when the economy is doing well, and eventually the rest of the world will get tired of financing those. Central banks globally now hold more of their reserves in gold than they do in dollars, and while that is partly because the price of the precious metal has risen so much over the last year, it is also an illustration of how they are diversifying away from the dollar. China has already launched a digital yuan and is starting to promote it as a serious alternative for settling payments for cross-border trade. The cryptocurrencies led by Bitcoin have had a rough year, but there is little sign they are going away and with every year that passes, they become more established within the financial system, and were always designed as an alternative to the dollar.

The list goes on. On their own, none of those factors might be enough to knock the dollar from its throne as the world's most important currency. But when they all come together at the same time, the greenback is clearly at risk. Like a Latin American strongman, Trump is intent on personalising the government of the US and boosting his own reputation. But if he goes ahead, this may well turn into the moment when the world decides the dollar was not the rock-solid reserve currency any longer and decides to switch to something new. If that happens, the results won't be pretty for the US economy, and Trump may well come to regret his vanity project.

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New Fed chair Kevin Warsh takes the reins of the world's most powerful central bank at a difficult time, says Roger Ferguson for the Council on Foreign Relations think tank. Donald Trump wants easier money, saying, on swearing Warsh in, that “we want to stop inflation, but we don't want to stop greatness”. Trump openly criticised Jerome Powell, Kevin Warsh's predecessor, for failing to cut interest rates. But US inflation is running at 3.8% and has been above the Fed's 2% target for five years in a row. Cumulatively, the price level is nearly 25% higher now than it was in 2020.

Pricier petrol, the fallout of Trump's adventure in Iran, threatens to trigger a new inflation wave. Kevin Warsh may be “compelled to raise interest rates”, which is “precisely the opposite of what Trump had in mind”. Fireworks could lie ahead.

Kevin Warsh will have more elbow room when it comes to cutting the size of the Fed's balance sheet, says Colby Smith in The New York Times. He sees the institution's holdings of $6 trillion in government bonds and other securities as “emblematic of everything that has gone wrong” in central banking since the 2008 crisis. But drawing down the portfolio must be handled with great care. In 2019, a similar attempt to reduce the balance sheet too quickly gave markets a “near heart attack”.

Kevin Warsh must deal with ‘hot’ US inflation

Investors began the year expecting “at least one or two rate cuts”, says The Economist. Now, rate hikes are in the picture. US inflation is “hot”, and the cause is not just oil. Even the core measure, which excludes energy and food, rose at an annualised 3.2% during the three months to April. Central bankers are taught to “look through” energy shocks, which usually prove temporary, but broad-based signs of inflation are harder to ignore. Service prices are rising “uncomfortably fast”. And durable goods – for decades a source of disinflation – rose at an annualised 7.7% in the first quarter of the year. That reflects the effect of both tariffs and soaring prices for computer kit amid the AI boom.

The oil crisis has led to inevitable comparisons with the 1970s, says James Smith for ING Think. In some respects, the similarities are “striking”. Now as then, we face an energy shock emanating from Iran. Now as then, US government spending is unsustainably high. But in other ways we live in a quite different world. Per-capita oil consumption in the UK is 55% lower today than it was 50 years ago. In real terms, energy prices are well below the levels of the late 1970s, when they hit nearly $200 in today's money. Unionisation rates have collapsed since the 1970s and strike action is far rarer than it used to be, reducing the risks of a sustained inflationary surge.

Not that everything is rosy. In some respects, advanced economies face new sources of inflationary pressure that didn't exist in the 1970s. Populations are ageing and net migration is beginning to fall sharply because of stricter border policies. That threatens “shortages” of workers on a scale “with little precedent in the West”.

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Donald Trump has sworn in Kevin Warsh as the new chair of the US Federal Reserve, replacing Jerome Powell, in what was supposed to be the big monetary policy event of the year. Kevin Warsh, like all of Trump's preferred candidates for the Fed's board of governors, has sounded very keen to cut interest rates. Assuming that he was not simply paying lip service to the president's wishes in order to win the nomination, that would mean huge pressure in the Fed for aggressive easing. Yet it is no longer so clear that the change of chair will matter much.

The Middle East crisis has changed the calculation. Markets are now pricing in interest-rate rises rather than cuts, while longer-term bond yields are rising again. Of course, a central bank that is determined to slash short-term interest rates could ignore fears about inflation and cut regardless. It could also try to control long-term yields by buying up longer-dated bonds. But in this environment, it is far less likely that Trump's appointees will be able to shift consensus among other board members towards much looser policy. Nor is it obvious from his own record that Kevin Warsh will be quite so dovish for now, notwithstanding his frequently expressed view that AI will usher in productivity gains that justify structurally lower rates.

Interest rates are not Kevin Warsh's biggest problem

All else being equal, easier policy would have been even more bullish for already-exuberant stock markets, especially in the US. Yet investors have not been behaving as if policy was too restrictive anyway.

Note how strongly markets have risen with interest rates where they are. Short-term rates at around 4% and longer-term rates at around 5% only look high by the abnormal standards of the 2010s.

So the real risk to markets is not that interest-rate cuts don't come. Instead, it is the hard reality of where fears about inflation are coming from: the disruption to energy supplies. Every week, markets trade as if the crisis will be resolved; every week, we see no solid progress. If this finally starts to catch up with the real economy – which could happen in early June, some analysts reckon – the Fed's decision to tinker or not to tinker will quickly become irrelevant.

A date for your diary

The first of the twice-yearly Mello conferences for private investors takes place next month, on Tuesday 2 and Wednesday 3 June in West London. This event always features an interesting line-up of several dozen companies and funds presenting to existing and prospective investors: one of the highlights in last November's event was Seraphim Space, which has been the star of the investment-trust sector this year. Mello is offering MoneyWeek's readers a 25% discount on tickets – go to melloevents.com/mello2026 and use the code M26MW25 to book.

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What force will shape the world in the next 20 years? The answer is China's drive to financialise, according to Diana Choyleva, founder and chief economist at Enodo Economics.

In this episode of the podcast, Diana speaks to MoneyWeek's Cris Sholto Heaton about how the AI race differs in China versus the West, the transformation of the country's equity market, and the breakdown of globalisation.

You can watch this episode on our YouTube channel or subscribe to it on any podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Is the US dollar still king?

Yes, the US dollar remains the world's de facto reserve currency and the unrivalled backbone of the global financial system: it accounts for 56% of global foreign-exchange reserves and is involved in 89% of all foreign-exchange market trades worldwide.

Although the US is responsible for less than a tenth of global trade, about 54% of it is still invoiced and settled in US dollars. About 60% of all international loans and deposits are denominated in dollars, as is 70% of international bond issuance. Even physical US banknotes are widely held abroad thanks to the dollar's broad acceptance in almost every country in the world and its perceived utility as a low-risk store of value. Indeed, the Federal Reserve estimates that over half of the more than $2 trillion of US banknotes in issue are currently held by foreigners.

Is that good for America?

Yes. The vast global demand for US dollars translates into an embedded premium for US assets and a discount for its debt – what France's former president Valery Giscard d'Estaing famously dubbed America's “exorbitant privilege”. It also puts the US in a uniquely strong position to damage the financial systems of other countries via the use of punitive sanctions.

Not everyone agrees that the privilege is all that exorbitant, however. Some US economists, including advisers to Donald Trump, argue that the costs of the US dollar's reserve status outweigh the benefits. It might make borrowing rates lower than otherwise, but (they argue) this discount is overstated, while reserve status also makes the US currency unduly strong, hurting US exporters.

From the rest of the world's perspective, though, controlling the world's most powerful and desired currency does seem like a very nice problem to have.

Why is the US dollar supreme?

The US dollar's strength rests on solid structural foundations: the size and openness of the US economy (accounting for about a quarter of global GDP), the liquidity of its financial markets, the rule of law and powerful network effects that are self-reinforcing. Put simply, says Paul Krugman on Substack, “the most powerful force behind the dollar's dominance is the fact that the dollar is already dominant. The very fact that everyone uses dollars as money makes it easier to use dollars than any other currency.”

The privilege this confers is often overstated, says Krugman, but it is real. Businesses and banks must often use the US banking system, meaning that US officials have the power to observe and, in some cases, block these transactions by, for example, imposing sanctions on adversaries and secondary sanctions on those who trade with them.

Is the US dollar's dominance declining?

Yes. Measured by central-bank reserve holdings, the US dollar's share has fallen from around 71% in 1999 to around 56% today. That's a meaningful shift, driven in large part by the creation of the euro at the turn of the century (it now has a 20% share). But that's scarcely a collapse. The dollar may well become less dominant as a unit of exchange, but it's unlikely to lose its crown as the global reserve currency, argue analysts at Charles Schwab, since there's no real alternative.

A reserve currency needs to be freely convertible and have deep and liquid bond markets to be considered safe for foreign central banks to hold – and there is no other national market that matches the US in terms of size and openness. The euro area's bond markets are far more fragmented. Japan's bond market is closely controlled by its central bank, which owns the bulk of its government debt. China has capital controls, excessive political risk and its currency isn't even freely convertible.

Is the US dollar safe?

It's more that “de-dollarisation” is likely to be gradual rather than imminent. Central banks are already diversifying holdings, buying gold (exceeding 1,000 tonnes annually, the highest in decades) and currencies that come without the geopolitical baggage of today's US (Canadian and Australian dollars, for example).

And there's been a proliferation of bilateral trade arrangements denominated in non-dollar currencies, particularly involving China – including agreements to settle energy trades in yuan, especially among countries (such as Iran) that are subject to, or wary of, US sanctions.

The “weaponisation” of the US dollar to impose sanctions following Russia's invasion of Ukraine gave new impetus to that trend. Yet to date, none of this amounts to a systemic shift. The yuan, despite China's economic heft, still accounts for only around 2% of global reserves. Yuan-denominated trade accounts for less than 4% of the global total; payment systems such as China's Cross-Border Interbank Payment System (CIPS) remain tiny relative to the dollar-based infrastructure centred on Swift.

How is Trump affecting the US dollar?

The turbulence of the second Trump presidency – from the tariff scares to the Iran war and oil shock – has ramped up talk of the US dollar's decline. Trump's unpredictability and apparent disdain for international order and traditional alliances sits uneasily with the dollar's putative role as a global public good.

The dollar slumped in the early months of the second Trump presidency, falling more than 8% in the first four months of 2025 as the world took fright at Trump's tariffs. Yet even from its peak in January 2025 (the start of Trump's current term), the dollar's fall still leaves the US currency near the high end of its 15-year range in trade-weighted terms.

Geopolitical shocks may well encourage hedging and experimentation with alternatives, and chip away at the dollar's aura of neutrality. Equally, economists will continue to worry about the sustainability of US deficits and its gigantic, growing debt pile ($39 trillion, or about 124% of GDP). But none of these factors, in themselves, create a viable successor. The dollar may decline, but there's no sign yet of its fall.

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US debt is getting out of control. Amid the fog of war, it would have been easy to overlook the latest deficit number coming out of Washington. According to figures from the Treasury Department, the US national debt is now more than $39 trillion. It is only five months since it went past $38 trillion.

US debt has doubled from only $19 trillion when Donald Trump was sworn in for his first term as president. The overall debt-to-GDP ratio is now more than 124%, and by the end of 2026, interest payments will be more than $1 trillion a year. The deficit is rising at a relentless pace and the Treasury is issuing more and more debt to stay afloat.

The US debt pile is going to get a lot bigger over the next few years. Firstly, the Iran war is going to prove hugely expensive. According to the Pentagon, the first six days alone cost $11 billion and the total bill is already more than $40 billion and going up all the time. The hi-tech missiles and bombs the US deploys to such lethal effect are very expensive and the arsenals will have to be restocked soon. If the war goes on, the bill will keep rising – and that is before looking at aid to rebuild a shattered country if the regime falls.

Tariffs won't reduce US debt

Secondly, the revenue from tariffs looks more and more uncertain. Putting levies on everything America imports was always going to be a problem for the economy, but at least it brought in significant new revenue. It was, in effect, a tax, and given the size of the deficit, perhaps that was just what the US needed. The federal government collected $280 billion in tariff revenue in 2025, triple the figure for 2024, and the levies were only fully implemented in September. In March, however, the US Supreme Court ruled that the way they were imposed was illegal and exceeded the powers of the presidency. Even worse, the ruling may mean the revenue has to be repaid. The result? We can forget about that extra money reducing US debt, and the repayments, if that is what happens, will have to be paid with yet more borrowing.

Thirdly, the Department of Government Efficiency (Doge), the ruthless cost-cutting machine established by Elon Musk to take a chainsaw to government spending, has achieved very little. Musk talked grandly of cutting hundreds of billions from the state machine and hired a bunch of whizz-kids to make it happen. As it turned out, however, it turned out to be a lot harder than cutting costs at Twitter (now X) or one of his other companies. Doge did have some success: it cut the number of Federal employees by 9%, the largest fall since the demobilisation after the end of the Korean War in the 1950s. Even so, the unit has now been effectively disbanded as a single entity.

In effect, the Trump administration has given up on the attempt to slash waste and inefficiency. It proved to be too hard and little progress was made. Indeed, with the watchdog out of the way, all the staff who were laid off will probably be quietly restored to the payroll.

Finally, the mid-term elections due later this year will be terrible for the Republicans. Trump was already falling in the opinion polls, and the war in Iran has made his ratings worse. If there is a deadlock between Congress and the White House, we can forget about any controls on spending, on tax rises, or any serious effort to balance the books. There may be periodic shutdowns as the two sides fail to agree on a budget, but that won't reduce spending – it will just make the state even less effective. In reality, the political machine has lost the ability to put any meaningful restraints on spending.

True, the US economy remains strong, certainly compared with a stagnant Europe. But the maths can't be ignored forever. The last president to balance the books was Bill Clinton back in the 1990s. We don't know yet how a fiscal crisis will play out. There may be a surge in inflation, tolerated by the Federal Reserve, to whittle it away in real terms. The dollar may collapse as investors lose faith and switch to alternative currencies, perhaps including the newly launched digital yuan, or else gold or bitcoin. Or there may be a long shutdown as the federal government simply runs out of cash. We will find out over the next few years. For investors the important point is surely this: the dollar is not nearly as strong as it looks. Sooner or later there will be a crash – and the only smart move is to diversify before it happens.

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I must admit to being rather disappointed that Donald Trump has chosen the wrong Kevin to be the next chair of the Federal Reserve. For many months, Kevin Hassett – who investors with long memories may know as the author of the laughable Dow 36,000 – sat in pole position. Appointing him would not have been good for the Federal Reserve’s credibility, but his obsequious enthusiasm for cutting interest rates promised to be very entertaining. Sadly, Trump changed his mind, and we have been robbed of the central bank boss that our peculiar times deserve.

Still, any idea that Kevin Warsh will be some kind of interest-rate hawk does not sound plausible, regardless of his position when he was last at the Federal Reserve 15 years ago. He appears to be in favour of cutting short-term rates aggressively, if not quite as aggressively as Hassett. At the same time, he also wants to shrink the Fed’s bond holdings. The latter course of action should, in theory, mean higher long-term yields, since the Fed will no longer be mopping up so many longer-dated bonds, and a steeper yield curve. How that squares with treasury secretary Scott Bessent’s desire to cap longer-term yields is unclear, to say the least. All told, the outlook could get quite confusing.

The Federal Reserve is an institution that Republicans still seem to care about

Of course, this assumes Warsh is confirmed as chair and manages to get enough of the Fed governors on his side, which is by no means certain. One of the few US institutions the Supreme Court and Republican senators still seem to care about shielding from presidential whim is the cargo cult of modern central banking. Trump has been able to get away with extreme levels of overreach in practically every sphere, but giving him free rein over the panel of technocrats who can supposedly guide the direction of a $30trillion economy by tinkering with interest rates is apparently a step too far. Nonetheless, past experience suggests he will more or less get his way. If so, Warsh’s statements seem consistent with how our asset-allocation portfolio is positioned. We remain concerned that longer-term bonds offer too little compensation for the risk of higher yields and higher inflation (not just in the US but in the UK and elsewhere) and so we are sticking to short-term bonds.

Part of our protection against central banks getting it badly wrong is our 10% allocation to gold. I am doubtful that the rapid sell-off in gold at the end of last week had much to do with Warsh’s appointment, even though that explanation has been widely quoted. Metals had rocketed the previous week with clear signs of speculative excess; a pull-back was overdue. Huge moves in data and digital companies that might – or might not – be affected by AI point to a twitchy and volatile market in any case.

We are not making any changes to our holdings, but investors who have held gold for a while may find that it now accounts for a much larger share of their portfolio than originally intended. If you find that you are now heavily overweight, you may want to trim a bit back to target. We will do this in our regular rebalance at the end of the tax year.

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Donald Trump has picked Kevin Warsh as the new chairman of the Federal Reserve, the US central bank, after months of very public arguments. The markets liked the choice. Equities rose on the news and gold tumbled as investors decided they no longer needed to hedge against the collapse of the dollar. Warsh is an experienced banker and policy-maker, but he is also close to the Trump circle, and in the past has advocated bold reforms of the way monetary policy is set. Given that Trump could easily have appointed Elon Musk, or one of his children, or even Melania, Warsh is seen as a relatively safe pair of hands.

Still, the challenges Warsh faces are daunting. First, he will have to re-establish the independence of the central bank. Trump has very clearly been trying to bring the Fed under political control, pushing it to cut interest rates even though it is far from certain that inflation is not going to start rising again. The incumbent, Jerome Powell, is facing legal action for overspending on the Fed’s new headquarters. The markets are not going to trust a Trump stooge and especially one who looks willing to start printing money to finance the president’s lavish spending and tax cuts. At some point, Kevin Warsh will have to make it clear that he is in charge, not the president. If he doesn’t, and if he seems to be conceding to Trump’s demand to juice the economy, especially ahead of the mid-term elections due later this year, the sell-off of the dollar, and Treasury bills, will start up all over again, and perhaps more savagely.

Next, Warsh needs to persuade both the White House and Congress that the deficit genuinely matters. The US economy is in robust health, but the budget deficit is still running at more than 5% of GDP and there are no plans to bring it under control. The US state has become addicted to borrowing to finance its spending. The last president to actually balance the books was Bill Clinton at the start of the century. The US has managed to get away with it so far, racking up bigger and bigger debts with every year that passes. But it has benefited from its reserve currency status, and it has been able to mop up huge amounts of Chinese savings. None of that will necessarily last forever. Warsh needs to find a way of getting the Senate, Congress and White House to control spending and, if necessary, raise taxes. The US can’t run deficits forever without risking ruinous inflation.

Thirdly, the new Fed chair needs to reinvent the dollar for a post-globalisation world. Trump has made it clear he does not want the US to finance the global trading system, that he is determined to bring free trade under control, and he wants to put America first. That is why he has ripped up the free-trade consensus and imposed the steepest tariffs since the 1930s. Whether the dollar can remain the global reserve currency in those circumstances is far from clear. Indeed, there is already evidence that central banks around the world are diversifying into gold and even bitcoin. The European Central Bank is too weak to influence anything, but China is carving out a global role for the yuan, and that is only going to grow in significance. What is the role of the Fed in all of that? Warsh will need answers, or else be left floundering as the world changes around him.

Kevin Warsh will need to calm the AI bubble

Finally, Kevin Warsh needs to calm an AI and tech bubble that has run out of control. AI is clearly a major new technology, and will create huge business opportunities, but it is also clear that investors have driven valuations far too high, just as they did at the height of the first internet boom a quarter of a century ago. Likewise, a handful of leading tech stocks have dominated the global markets. Sure, it will be great for the US economy that so much money is invested in the technology, with more than $100 billion poured into data centres and start-ups over the last year. It will pay off eventually in terms of new products and higher productivity, and it is a lot more impressive than anything that is happening in Europe. Even so, a crash will derail that, and once it starts may easily run out of control. The trick for Warsh will be to curb what one of his predecessors, Alan Greenspan, described as “irrational exuberance” without the entire market collapsing. It will not be easy. But he will have to try all the same. If the bubble carries on for another year, it will be too late.

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Is Canada worried about Donald Trump?

Yes, Canada is very worried. The advent of Donald Trump’s second term as US president a year ago – accompanied by presidential threats about seeking to make Canada the 51st state – dramatically transformed Canadian politics. The poll ratings of the Conservatives, led by Trump-aligned Pierre Poilievre, slumped. And the Liberals, under their new leader Mark Carney – who campaigned on a platform of hard-headed patriotism and economic nous – surged to an unlikely victory in last April’s election. Just hours after winning his own mandate as PM, Carney delivered an extraordinary warning about how his nation’s powerful neighbour and long-time closest ally was becoming its greatest threat. “America wants our land, our resources, our water, our country,” he told supporters. “President Trump is trying to break us so that America can own us. That will never ever happen.”

How has US-Canada's relationship been?

Up and down, with signs of some grudging respect for Carney in the White House, and some accommodations by the Canadian PM that belie his more robust rhetoric. Tariffs have been imposed, and sometimes walked back. Economically, the worst has not happened. But there has been permanent strategic damage done, and no Nato member has been as assertive as Carney in standing up to Trump’s talk of hemispheric dominance and threats to his neighbours’ sovereignty. In the case of Canada, as in Greenland, that threat is real, not imagined. Last month, US Treasury secretary Scott Bessent encouraged the secessionist movement in the western resource-rich province of Alberta, saying the region should “come on down” and join the US – astonishing talk from a supposed ally. Last month in Davos, Carney won a rare standing ovation from politicians and business leaders after warning of a “rupture” in the world order, and pledged that Canada would take on “the world as it is, not wait around for a world as we wish it to be”.

How intertwined are US and Canada?

Exports account for a third of Canada’s GDP and more than 75% of them go south to the US. By contrast, exports account for about a tenth of America’s GDP, and only around 16% of them go north to Canada. So the imbalance and dependent relationship is stark. While Canada’s exports to the US account for about 25% of its economic output, the US’s exports to Canada make up a tiny sliver (roughly 1.6%) of its national GDP. Moreover, many of the two countries’ biggest industrial sectors, including automotive and energy, are “almost irreversibly interwoven”, says Emily Stewart in Business Insider. For that reason, Carney is treading an exceptionally fine and difficult line between standing up for Canada’s interests and making things worse by angering Trump. In some ways, a more economically assertive Canada has been necessary for a while. From Bush’s “You’re with us or against us” mentality post-9/11 to Obama’s “Buy America” push to Biden’s industrial policy, the US “has been acting like a less friendly friend for a while”, says Stewart. Under Trump, there’s been a radical shift – most recently with his threat of a 100% tariff on Canadian goods if Ottawa follows through on a trade deal with China in the face of US opposition.

How effective is Trump's tariff threat on Canada?

Currently, about 85% of Canada’s trade with the US is exempt from tariffs under the 2020 US-Canada-Mexico free-trade agreement, known as USMCA. Even so, Trump’s mercantilist trade policies have had a sharp impact on vital sectors of Canada’s economy, in particular the automotive industry, steel and aluminium, and softwood forestry – all of which have suffered significant job cuts as the result of US tariffs. The trade agreement is up for renegotiation later this year, adding to the peril for Canada. Understandably, the Carney government is now working at speed to cut its dependency on the US and boost trading ties with other nations. About three-quarters of Canada’s exports go to the US; the aim is to reduce this to half.

What is Canada doing to that end?

Carney has launched a “nation-building” infrastructure agenda, including high-speed rail and port expansions that will be used to transport abundant natural resources to new markets. In addition, his government has announced plans for more (small modular) nuclear reactors and wind power, a doubling of liquefied natural gas production and faster extraction of critical minerals. To that end, Ottawa is embracing a “more active industrial policy” alongside a streamlined bureaucracy to “try and direct the economy and reduce red tape”, says Ilya Gridneff in the Financial Times. Besides, Trump does not hold all the cards. Most of the oil imported by the US comes from Canada. Canada’s biggest export is oil and gas piped to US refineries through networks that would cost billions to replace. The USMCA is too successful to fail. And the second biggest export sector – cars, vehicle parts and metals – have been built into a cross-border supply chain since the 1960s.

Are markets worried?

They’re pretty sanguine. Fiscally, Canada is in reasonable shape. Royal Bank of Canada expects an overall budget deficit for this year of 3.3% of GDP, not excessive compared with the US’s near-6%. The Canadian dollar has strengthened against the US currency during Trump’s second term and the benchmark TSX Composite index has been hitting record highs – it’s up 30% over the past 12 months, almost twice as much as the S&P 500. The main reason, says Lex in the FT, is that about half of Canada’s stockmarket is accounted for by natural resources – where prices reflect global trends and which the US needs in large quantities – and finance, which is outside the tariff net. In the US, those sectors account for about 15% of the equity market. “Canada is my biggest overweight among developed markets,” says Marko Papic, a chief strategist at BCA Research. “Carney knows exactly what he’s doing.”

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What's going on between Greenland and the US?

No one is sure what is going on between Greenland and the US and many are too shocked to try and work it out. But the events of the past week look and sound awfully like the shattering of the 80-year-old Atlantic alliance. For having the temerity to oppose US annexation of Greenland – an autonomous Danish territory whose 60,000 or so residents are Danish and EU citizens – the US president announced 10% tariffs on eight European nations, including Denmark and the UK. By not accepting the need for US sovereignty over the world’s largest island, first settled by Norse explorers more than a millennium ago, America’s Nato allies had created “a very dangerous situation for the Safety, Security, and Survival of our Planet”, Trump wrote. He said the 10% import taxes would rise to 25% in June and continue “until such time as a Deal is reached for the Complete and Total purchase of Greenland”.

Is Greenland for sale?

No, Greenland is not for sale, but this is at least the fourth time Washington has tried to buy it, which is geographically part of North America. In 1868, US secretary of state William Seward pursued the acquisition of both Greenland and Iceland (which didn’t gain full independence from Denmark until 1944) for a reported $5.5million (about $130million today). It followed the successful purchase of Alaska from Russia the previous year for $7.2million. The talks stalled, and there were similar failed negotiations in 1910. It wasn’t until 1917 that the US formally recognised Denmark’s sovereignty over Greenland, in exchange for the US purchase of the Danish West Indies (now the US Virgin Islands).

Why does Trump want Greenland?

Location, natural resources and prestige – but it’s not clear in what order. After World War II, when the US occupied Greenland with Danish consent, president Harry Truman offered $100million (about $1.7billion today) to buy the island. That, too, was turned down, but a 1951 US-Denmark defence pact once again recognised Danish sovereignty, while giving free rein to the US to build military bases there. For decades, under the Nato umbrella during the Cold War, the US made the most of that right, principally at the Thule air base, on the northeast coast 750 miles north of the Arctic Circle. At its peak, the base (now renamed the Pituffik Space Base) was home to 6,000 US military personnel, with another 4,000 across the island. Today, there are fewer than 200.

Is Greenland not exactly a strategic priority?

Quite. But the world’s heating climate has changed that sanguine calculus. Global warming is opening up Arctic sea routes, making the exploitation of Greenland’s mineral resources more plausible and conceivably increasing the threat to the US from Russia or China via the polar region. But when it comes to resources – Greenland has 39 of the 50 minerals classed by the US as critical to national security – the economic case doesn’t add up. Greenland is an island the size of Saudi Arabia with just 100 miles of paved roads in total, and most of the territory is covered by an ice sheet up to a mile deep. “The harsh environment, enormous financial investments, and massive infrastructure and workforce buildout required to create an economic engine could cost at least $1trillion over two decades [and makes] little to no economic sense,” says Jordan Blum in Fortune. There’s oil, but the last, unsuccessful drilling bid was abandoned in 2011. Neither of the active mines extract the desired rare earth metals essential to computer, vehicle and military equipment. Moreover, Greenland is already open for exploitation, and sovereignty would add nothing.

What about the security argument?

Greenland is on the fastest routes between the US and Russia. Existing defence treaties with Denmark give Washington all of the necessary military access for “Golden Dome” bases and naval patrols. But Trump is on a drive for hemispheric dominance and – perhaps – personal prestige. His administration increasingly sees the world in terms of 19th-century Great Power politics, with the Monroe Doctrine of US hemispheric hegemony – and its new “Trump Corollary” – specifically at its centre. In 1848, the British foreign secretary Lord Palmerston observed that England has no “eternal allies or perpetual enemies” – only eternal and perpetual interests, and “those interests it is our duty to follow”. For the 19th-century hegemon, Great Britain, read Trump’s America today. Trump believes the Atlantic alliance is ineffectual, so it doesn’t matter to him that the US could achieve all of its national security and economic objectives without annexing Greenland. Trump’s “eternal interest” is in safeguarding the security of the US in perpetuity, and he appears to have determined that acquiring sovereignty over Greenland is vital to that end.

What can Europe do?

Protect its own interests. European governments and investors own around $8trillion of US bonds and equities – almost twice as much as the rest of the world combined. But pulling that investment back is likely to be a slow process, with investors wary of overreacting. If Trump’s tariffs had gone ahead on 1 February, then Brussels would almost certainly not ratify last year’s EU-US trade deal, and retaliatory tariffs would be on the table. The nuclear option for Europe would be the EU’s Anti-Coercion Instrument, a law that allows the EU to respond punitively to economic blackmail from non-EU countries interfering in the “legitimate, sovereign choices” of the EU or its member states. Measures include tariffs, import and export restrictions, curbs on trade in services as well as reduced access to banking and capital markets – and blocking access to most of the single market while ignoring existing international treaties. It’s a nuclear option as it would wreak major economic damage on Europe itself, and is designed more as a deterrent – bringing offenders to the negotiating table – than as an offensive one. Let’s hope it isn’t needed.

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It is a bizarre legal action. Jerome Powell, the chairman of the Federal Reserve, the US central bank, has been prosecuted over renovations of the Fed’s headquarters and may now face criminal charges. Given that it manages an economy worth $30trillion and the world’s reserve currency, it is hard to see that the $2.5billion spent on improving the Fed’s offices really matters much. Even so, Donald Trump has clearly decided to use it as a weapon for a full-scale assault on a Fed chairman he would prefer to get rid of.

Powell himself was clear that the legal attack was just a way of bringing the Fed to heel. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preference of the president,” he said in a statement. In other words, it is a political attack on the Fed and an attempt to allow the president to control monetary policy. If Powell is removed from office by the courts, whoever is appointed to replace him will clearly be taking instructions directly from the White House.

That is a dramatic and dangerous development. This is not to deny that independent central banks are worthy of criticism. Over the past 30 years, they have become too powerful, too confident in their own abilities and too quick to print money. You can make a case that, instead of ensuring greater stability, which is what they were meant to do, independent banks have inflated a series of asset bubbles, indulged spendthrift politicians and prioritised trendy causes while allowing industry to be hollowed out. There is a case for reform. Still, there is a big difference between that and a power grab to hand the right to set rates to the White House.

There are two big problems with that. First, it looks as if Trump is determined to control interest rates himself, either directly, or else through a tame proxy at the Fed. That is not without precedent. In Britain, interest rates used to be set by the chancellor, but the result was that the UK had one of the worst records on inflation in the world before Gordon Brown made the Bank of England independent in 1997. And it is hard to think of a worse person to set rates than Trump. He is temperamental, he constantly changes his mind, he doesn’t listen to advice, and his falling approval ratings mean he will constantly try to cut rates to boost short-term demand. Even more seriously, if the president acquires the right to set rates, it’s hard to see how it will ever be given up. It is too major a power to surrender. The US will have a politicised monetary policy permanently.

How bad will it get under Trump?

Everything else the president is doing appears designed to stop the free market working and drive up prices. The US has already imposed the steepest tariffs since the 1930s, with an average levy on imports of 18%. Closing off its markets to global competition will only drive prices higher and quality down. Only last weekend, Trump promised to cap credit-card interest at 10%, the kind of populist policy you would expect from the far left. Trump has also started capping corporate investment in the housing market. He is directing the oil companies to invest in Venezuela regardless of whether there is an investment case for it or not (with oil at $50 a barrel, there probably isn’t). There does not appear to be a coherent plan, but a whole series of interventions to create markets rigged by the government. State-controlled economies always end up with higher prices.

Add it all up, and one thing is clear – sooner or later the US will see a major rise in inflation. How bad will it get? There is no way of knowing for certain, and it will depend on what else is happening in the global economy. But once prices start to rise we know they are very hard to bring under control again. And if US prices rise, that will drive global prices higher. We can expect inflation to spread to Britain and the rest of Europe very quickly. Investors are already positioning themselves for that, with the price of gold hitting record highs every week. Prices of defensive assets will inevitably go a lot higher.

The way that central banks responded to the global financial crisis almost 20 years ago is often derided as “printing money” and “debasement”. This shorthand is odd. Whereas a Roman emperor might debase a coin by reducing its precious metals content or a Weimar chancellor might print banknotes, now money creation is digital. That’s because in a modern economy, money takes the form of bank deposits stored electronically.

Unlike banknotes, which are printed on polymers with holograms and foil patches to prevent forgery, electronic money is replicable. Anything digital can be copied ad infinitum. An album on Spotify or a video on YouTube can be streamed all over the world at close to zero marginal cost. For most digital assets this doesn’t matter – millions of people can own the same album. But for digital money to hold its value, different people can’t simultaneously use the same asset.

To prevent double-spending, bankers adopted centralised electronic ledgers, recording transactions between counterparties, verifying and confirming the change in balances between the two account holders. Centralised ledgers form the backbone of the financial system, handling trillions of transactions. Then around 20 years ago, crypto enthusiasts invented an alternative to centralised ledgers – distributed ledger technology (DLT), where a DLT is maintained across a network of computers rather than being held by a central authority such as the central bank.

It’s not entirely clear what problem the innovators thought this was solving. Yes, bitcoin’s value has increased exponentially, to such an extent that the 10,000 bitcoins used to buy two pizzas in the first real-world transaction in 2010 would now be worth a billion US dollars. Yet despite this, bitcoin has failed to achieve the original ambition set out by the pseudonymous Satoshi Nakamoto in his or her original white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System.

To take one telling example, a bitcoin conference in Miami had to stop accepting bitcoin payments for tickets due to network congestion, high transaction fees and the manual processing required. Organisers admitted the cryptocurrency was simply too impractical for everyday transactions like selling tickets. Similarly, Tesla began accepting bitcoin as payment for cars in 2021, yet Elon Musk reversed this decision within a couple of months, ostensibly for environmental reasons, as the process was so energy intensive.

Stablecoins: A “trading bridge” to crypto markets

Now a new kind of distributed ledger innovation is starting to occupy the spotlight: stablecoins. There are now more than $250 billion of stablecoins, up 59% year on year. These tokens are not designed for speculation: they are built for stability and transactions and are far more energy efficient than bitcoin.

A stablecoin is a cryptocurrency that aims to maintain a stable value relative to another asset, such as the US dollar. They were originally developed as a “trading bridge” to crypto markets. Investors use them to park profits from selling bitcoin and other cryptocurrencies, without having to convert back into money held within the traditional banking system.

Banks and neo-banks such as Revolut and N26 allow customers to buy crypto, but they will often block accounts that transfer in large sums of crypto from unidentified sources due to anti-money laundering (AML) requirements. As stablecoins operate on public blockchains, their compliance model is fundamentally different. They generally do not do know your customer (KYC) processes for their individual users. Instead they rely on crypto exchanges such as Binance, Coinbase or Kraken to do the KYC.

Much of the momentum for stablecoins has come from acceptance by financial regulators, particularly the Trump administration’s Genius Act. Financial institutions can now treat stablecoins like cash on their balance sheet, pegged to the value of the US dollar. Growing acceptance mean they are being plumbed into the pipes of the financial system.

For instance BlackRock, the world’s largest asset manager with over $10 trillion assets under management (AUM), announced a partnership with cryptocurrency exchange Circle that aims to enable USDC (Circle’s dollar-pegged stablecoin) to function as a form of programmable digital cash on the internet. BlackRock’s role is to provide an underlying cash-reserve investment, similar to a money market fund that invests in short-term government debt.

Tether’s money machine

Tether, the largest stablecoin with close to $180 billion in circulation, is 75%-backed by holdings in US government debt. In effect, Tether is able to borrow huge amounts from customers, pay no interest, invest the money in safe assets yielding 4% and keep 100% of the returns, amounting to annual interest of $7 billion.

This is an amazingly lucrative business model , yet somehow it is not enough, since Tether is already deploying 25% of its deposits elsewhere. This includes bitcoin and over 100 tonnes of gold – the growing popularity of gold reflects that “the world is going toward darkness”, according to CEO Paolo Ardoino.

A week ago, Tether made an all-cash proposal to buy Juventus Football Club. The press release does not make it clear whether it is using its own accumulated profits or customer deposits to fund the purchase – hopefully the former. Earlier in December, Tether Investments (the arm of the business that deploys its profits) announced it was taking part in a funding round for an Italian robotics company.

Still, regardless of where some of Tether’s deposits are going, it has become a meaningful player in US Treasuries, with its purchases offsetting the amount of US government debt that China has sold over the past three years. US Treasury secretary Scott Bessent has explicitly signalled that he expects stablecoins to become an even larger source of deficit funding for the US government. The US administration believes that dollar-backed stablecoins could appeal most to savers in countries such as Argentina, Egypt or Turkey, where trust in domestic financial institutions is low and people prefer to hold US currency.

Countries with a relatively high adoption of stablecoins already include Ukraine, Turkey and Nigeria – in effect, the population of these countries are funding US deficit spending. Conversely, non-US governments that hope to issue stablecoins in local currency may have missed a crucial point – the underlying demand is for stable US dollar exposure rather than the stablecoin itself.

How will stablecoins work in practice?

While stablecoins seem to be a “safe” asset, they have the potential to threaten financial instability. If billions leave the banking system to fund governments directly, this could raise the cost of funding for banks. No doubt banks would pass on higher funding costs to their borrowers – corporates and households.

Banks may respond to the threat to their deposit businesses by issuing their own stablecoins. They have also lobbied US politicians to prevent non-bank issuers from paying interest to customers or offering other incentives. Ardoino has told The Peg, a stablecoin newsletter, that this would be short-lived. “I’m not sweating at all. Many of these new stablecoins will fail,” he said. “If JPMorgan creates a stablecoin, they will offer the stablecoin to their account holders, who are exactly the people that don’t need a stablecoin.”

There remain several puzzles about how stablecoins will work in practice. Are stablecoins for non-bank customers simply a work-around of AML and KYC regulations? How will issuers like Tether and Circle maintain confidence in the peg to the dollar during a crisis? What constraints limit the supply of stablecoins?

It’s also unclear what problems stablecoins solve for ordinary savers who aren’t interested in using them as a bridge to speculate in cryptocurrencies. Obvious uses include cross-border payments that bypass the traditional bank-based payments system with its high fees. Yet this has already been solved by transfer firms such as Wise.

Stablecoins that pass on interest from their bonds (unlike Tether, at present) could mean that savers earn higher interest rates. However, investment platforms such as AJ Bell, Fidelity and Interactive Investor already report that their most popular products are short-term money market funds that invest directly in government debt.

So with the obvious applications in the developed world already met elsewhere, the demand for stablecoins appears to be coming from unstable parts of the world, as an alternative to keeping physical dollars under the mattress.

Is Tether worth half a trillion dollars?

Tether is seeking to raise $15 billion-$20 billion in funding by selling a 3% stake at an eyebrow-raising $500 billion valuation. The group has signalled net profits for 2025 of roughly $15 billion, so that would imply a price/earnings (p/e) ratio of over 30 times. Tether’s closest rival, Circle, which listed in New York in June, is valued at less than $20 billion, having fallen 70% from its June peak. Nonetheless, it trades on a p/e of almost 70 times forecast earnings for 2026.

UK banks trade on less than 10 times. Arguably, stablecoin issuers offer lower risk than banks, as they don’t take credit risk (ie, they don’t lend to customers) or do maturity transformation (use short-term deposits to make long-term loans). Yet Tether – which is domiciled in El Salvador and operates from the Swiss town of Lugano – does not match its stablecoin one-to-one with US Treasuries. This does not inspire confidence.

We’ve already seen one stablecoin – Terra – collapse, albeit with a different business model to Circle and Tether. Terra was not backed by Treasuries, but instead based on a poorly understood trading algorithm that created a death spiral. Do Kwon, the co-founder of Terra, was last week sentenced to 15 years in prison, with the judge saying he had committed “fraud on an epic, generational scale”.

Given that no bankers in the UK or US faced jail after the financial crisis, perhaps regulators holding management to account is one innovation that could be replicated from stablecoins groups to traditional finance.

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If nothing goes awry between now and the new year, 2025 will end up being a much better year for stocks than looked likely eight months ago. The US tariff sell-off in early April was severe at the time, but the slide ended faster than expected and markets rebounded quickly.

For all Donald Trump’s bluster, the reality is that he backtracked on the level of tariffs pretty significantly. Foreign governments signed a bunch of deals to placate him, including many promises around investment and trade that they will do their best not to deliver. Central banks began loosening monetary policy a bit more. So stocks went up again: the MSCI ACWI index – which includes developed and emerging markets – have returned a very strong 18% (including net dividends) in local currency terms.

It is likely that the full effect of the tariffs is yet to show up. It is also plausible that at some point the Trump administration will a) notice that the rest of the world has no intention of actually funnelling hundreds of billions of dollars more into the US and b) start to worry about some early signs of a slowdown in the part of the economy that is not fuelled by AI spending. At that point, it may decide to start a fresh trade war with China and Europe. However, until then, we are where we are: business as usual.

A long-term view on US stocks

Yet something is different. US stocks have returned around 16% this year – an above-average performance. However, that is only just in line with Europe and well below many European countries (including the UK), Japan and emerging markets. Note too this is in local-currency terms: factor in the drop in the US dollar and investors have done better in almost any other market. This runs against American outperformance in recent years and is the opposite of what most strategists were expecting at the start of 2025.

We cannot know whether this will happen again next year. However, on a long-term view we can note that the MSCI USA index trades on a forecast earnings yield (earnings divided by price) of around 4.5%. The MSCI Europe index is on an earnings yield of over 6.5%, the MSCI Japan is around 6% and the MSCI Emerging Markets is a bit under 7.5%.

In theory, the earnings yield is a direct proxy for expected longer-term real returns. You either get earnings back as dividends or reinvested by companies to create growth – either way, a higher yield should mean stronger returns. Reality is never that simple, but it is unarguable that the US will have to keep delivering much better earnings growth than the rest of the world to overcome the drag of starting on a lower yield.

So on a longer-term view, the odds are in favour of an extended spell when the rest of the world outperforms. This is why our asset allocation portfolio – which I will be reviewing shortly – keeps significantly underweighting the US despite its strong past performance. That call may finally be starting to work in our favour.

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The story of commodities in 2025 was “energy down, metals up hard”, says Ole Hansen of Saxo Bank. Silver and copper are continuing their record-breaking rallies, but the world’s oil men are feeling gloomy. Brent crude is down by a fifth since 1 January. The main European natural-gas benchmark is off 45% this year, to the relief of households. Overall, the Bloomberg Commodity Energy subindex has dropped 10% this year, even as the All Metals index has soared 43%.

Energy markets are dogged by talk of massive excess supply as Opec producers lift output caps, and new players such as Guyana enter the market. Meanwhile, China’s appetite for fuel is softening as its transition to greener supplies continues.

The International Energy Agency forecasts a near-four-million barrels a day surplus next year, equivalent to about 4% of global supply. Commodities firm Trafigura recently warned of a coming “super glut” as big new oil projects that were planned when prices were high enter production just as prices drop.

Why copper is the new oil

Aluminium has rallied 13% this year, with zinc up 8%. But it is copper, with its 33% gain, that has been the real star. Prices on the London Metals Exchange (LME) have topped $11,700/tonne this month. “Much as oil dictated the geopolitics of the last century, access to copper is becoming an economic imperative in this one,” says James Attwood on Bloomberg.

Just three countries (Chile, the Democratic Republic of the Congo and Peru) account for almost half of all copper mining. More than 40% of copper processing takes place in China, much to the alarm of Western politicians. And it takes an average of 15 years to turn a new copper find into a productive mine, and big new discoveries have slowed to a trickle over the past decade.

Meanwhile, on the demand side, copper sits at the heart of mega-trends from the building of AI data centres to electric vehicles (which require three times as much wiring as those with internal-combustion engines).

But not everyone is feeling bullish. Global manufacturing is in the doldrums, with US factory activity falling for nine months in a row, says Andy Home on Reuters. This year’s supply crunch doesn’t represent strong demand so much as a market “fracture” caused by fears that 2026 will bring new US tariffs on refined copper. Anxious dealers have been shipping copper to the US en masse in anticipation of new import charges, clearing out Chinese and European warehouses in the process.

Copper prices may be poised to “decline somewhat” next year as they pull back from recent record highs, says Goldman Sachs Research. Demand for Chinese refined copper appears to have fallen 8% year-on-year in the fourth quarter. For all the talk of shortages, the metal is actually in surplus globally this year and should be next year, too.

That said, the longer-term outlook is bullish as “rising structural demand from power infrastructure” runs into limited new mined supply, with the market expected to enter a deficit in 2029. Analysts forecast an LME price in 2035 of $15,000 per tonne.

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How should we tackle our anaemic productivity growth? Two answers have emerged: “Build Something Now”, and “Innovate Faster”. Chris Clothier, fund manager at CG Asset Management, recently put the case for the former when he noted that Britain “ranks... last among the G7 for gross fixed-capital formation, at about 18% of GDP annually. The range for the rest of the G7 is 20%-25%”.

Perhaps the most eloquent exponents of this school of thought are two Americans of the centre-left, Derek Thompson and Ezra Klein. Their book Abundance – very relevant to the UK – posits that the left in the US has championed excessive regulations and administrative burdens, which have severely hampered America’s ability to build essential things society needs, such as affordable housing, modern infrastructure and clean-energy systems.

The result is a system where completing important projects – such as building new homes or advancing green technology – is hampered or blocked entirely by layers of reviews and regulations. They point to Republican states where the balance is right – places such as Texas have built more homes and more jobs.

Unsurprisingly, this agenda has also attracted interest from Republicans, but the message is clear: America (or the UK) needs to build more infrastructure (and create more jobs) and homes, so that people can enjoy greater abundance. This agenda is being replayed here in the growth caucus of Labour MPs, who are making similar arguments: more homes, more green power infrastructure, more nuclear power, less regulation.

The argument is echoed in another influential book released this year, Breakneck, by technology and China analyst Dan Wang, who previously worked for research firm Gavekal. He compares the US, run by lawyers who often hinder the construction of new things, with China, run by engineers and scientists who focus on building assets such as trains, industry and homes at a rapid pace. His arguments about how long it has taken California to build a high-speed rail system are echoed in the omnishambles surrounding HS2.

How to boost productivity

However, mobilising additional capital to get things built, which in turn helps boost GDP growth (through more construction jobs, for instance), is far from a panacea. Although numerous studies show that additional investment in fixed-capital projects boosts growth (via so-called multiplier effects), these follow-on impacts have declined over the years, perhaps a result of increasingly burdensome regulations.

A rival school of economists and policymakers argues for a different approach. They tend not to disagree with the idea that less regulation is beneficial, and don’t deny that investment is essential. However, they prioritise the importance of what we might call “soft capital”: knowledge and governance. You can see this approach clearly in a recent paper from the UK’s leading economic research organisation, the National Institute of Economic and Social Research (NIESR). In an ambitious collaboration between productivity and growth experts, the NIESR collated a range of views about how to kick-start productivity gains.

The professors and academics suggested more investment in skills training, prioritising vocational and technical training through retraining programmes and flexible learning, supported by the Growth and Skills Levy. They also argued that the UK should support digital transformation of the public sector, ensuring universal access to digital services and mandating digital readiness for all policies.

Low public-sector productivity growth is a crucial problem that every politician likes to talk about, but few offer practical solutions. The academics also focused on what they called fragmented decisionmaking, short-term budgeting and an “overcentralised yet undercoordinated” Whitehall machine, “blocking the very productivity gains on which the government’s economic strategy relies”.

Investment in physical assets, such as roads, and urban transport, such as trams, does get a mention, alongside a commitment to keep public investment at around 4%-5% of GDP (the average since 1987 has been under 3%). But the skew is clear. Building things won’t solve the problem – skills and innovation are crucial. The most explicit exponent of the “Innovate Faster” school is Daniel Susskind, an Oxford economist who published a superb book last year called Growth: A Reckoning.

Like many, he’s sceptical about the view that simply building many things will make much difference. Instead, he suggests that working with the same physical capital, but making that capital work harder, is the key to growth. In policy terms, that might mean significantly increasing spending on research and development (R&D), fostering innovation hubs, and generally improving the workforce’s skills.

If, like Susskind and Co., you favour boosting skills and innovating more, then you need to accept that there are no quick fixes or populist freebies. Improvements in innovation and the skills base require long periods of focused change and investment, and are very far from commanding headlines. At present, the best model for this is China. Its Made in China 2025 technology plan has transformed China into a technology superpower. The downside is that in the process, it’s also almost certainly wasting countless tens of billions backing the wrong projects and plans.

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After World War II, America and its allies put in place a set of alliances, institutions and power structures to rebuild war-ravaged countries, create geopolitical stability and generate global economic growth. This post-war order has endured – with one important change – for much of the following eight decades.

The fall of the Berlin Wall and the dissolution of the Soviet Union seemingly marked the end of any alternative to Western capitalism and liberal democracy as the main global economic system. However, in recent years, it has become increasingly obvious that the ties holding this US-dominated system together are fraying and are likely to break.

We are heading into a new world that is likely to be more unstable. In a symbol of this change, on 5 September this year, US president Donald Trump signed an executive order renaming the Department of Defence as the Department of War. This restores the name that it carried from 1789 until 1947 and points to the rising risks of conflict in the years ahead.

So how should investors position themselves for what comes next? What areas that are currently under-represented in most portfolios should they consider for diversification and protection?

Rivalry and conflict between the US and China

The main question is how the shift from a single superpower to two contending nations – the US and China – will affect global supply, demand and the efficiencies of comparative advantage. Free trade has generated huge gains since the end of the Second World War, and even more so since the end of the Cold War. This is now clearly under threat.

With the end of the post-war order comes the new “Great Game”. This name was originally given to the struggle between Britain and Russia for influence in Central Asia (Afghanistan and Persia). This time, the strategic rivalry and political conflict is between the US and China. Paradoxically, it is America that is now pursuing a more inward-looking strategy under Trump’s Make America Great Again (MAGA) banner, while China aims to build economic and political alliances through its Belt and Road (BRI) and Global Development Initiative (GDI) projects.

While America strives to bring its manufacturing base back onshore, Europe is now having to divert budgets from social welfare to rearmament. Both are now in stiff competition with China to electrify the planet and build digital infrastructures. This will inevitably lead to global competition for resources across energy, metals and critical minerals.

This is leading the two superpowers to weaponise their core strategic advantages. For America, this is the US dollar, still the world’s global reserve currency. For China, it is a stranglehold on rare earth elements and critical minerals.

China needs an alternative to the dollar

Freezing and confiscation of assets and denial of access to global payments systems is forcing non-US aligned countries to look for an alternative store of wealth and means of exchange. Herein lies the potential significance of the Brics+, the informal name for the original group of five key emerging-market powers – Brazil, Russia, India, China, South Africa – plus other countries that have begun joining them for summits and policy coordination. Some see this group as a counterpart to the G7 group of developed economies. Initiatives by the Brics+ members so far include work on a development bank, central-bank cooperation and an international payment messaging system.

Any alternative to the dollar looks increasingly likely to be a form of tokenised, asset-backed digital currency. This explains why many central banks closely aligned with the Brics+ nations have been large buyers of gold and other precious metals.

If the creation of a new currency system seems far-fetched, it is worth a quick review of the genesis of the post-war order: the Bretton Woods Agreement of 1944. China is a great student of history, and this agreement provides an template for how new world orders are created. While World War II was still raging, more than 700 delegates from 44 countries met at Bretton Woods in New Hampshire in the US to work on a new global monetary system. The goal was to create a globally efficient foreign exchange market, prevent competitive currency devaluations and promote global economic growth.

John Maynard Keynes, one of the principal economists at the meeting, proposed creating a new international reserve currency called the “bancor” and setting up a global central bank called the “Clearing Union”. However, these proposals were eventually watered down by the US Treasury in favour of a more prominent role for the US dollar, whereby the dollar would be pegged to the price of gold, and other participating currencies would be pegged to the dollar. The agreement was fully implemented in 1958, pegging the US dollar to gold at $35 per ounce.

This system functioned until the early 1970s when it became evident that US gold reserves were not adequate to sustain the peg. This caused a run on gold, forcing first a temporary suspension of the dollar’s convertibility into gold followed by complete collapse of the agreement in 1973. US president Richard Nixon also imposed a 10% tariff on all dutiable imports to force its major trading partners to adjust their currencies upwards and trade barriers downwards. Does this sound familiar?

China has already taken the strategic initiative to convene the Brics+ group of nations. It has established the Shanghai Gold Exchange – and associated physical storage – and now holds a significant percentage of its reserves in gold. It has shown little desire to replace the dollar with its own currency – internalisation of the renminbi would erode the ability to operate capital controls – but it and its allies need an alternative to the dollar.

Given China’s embrace of technology and advanced domestic digital-currency adoption, it does not feel far-fetched to envisage it launching a Bretton Woods-style gold-backed digital currency for those unable or unwilling to access the US dollar system. Crypto tokenisation is the vehicle, not the asset.

China's control of strategic resources

China’s strongest bargaining chip lies in its control of rare-earth elements (which are used in magnets, electrification, lasers and optical devices, catalysts and emission controls and radar/guidance systems), as well as critical minerals, that have broader energy, industrial and defence applications.

China has this control because, while the West focused on the comparative advantage of outsourcing its production to countries with lowest costs, China focused on building an end-to-end supply chain comprised of exploration, mining, refining and industrial manufacturing. With its looser environmental controls, it has come to dominate the global supply of these critical minerals.

In the tit-for-tat game of tariffs and sanctions, China is able to leverage its position in the one area where the US is completely vulnerable. So just as China and its allies have no alternative but to develop a competitor to the US dollar as a store of wealth and means of exchange, the US and Europe now see they have no choice but to develop alternative sources for mining and processing capacity to break this reliance. Exacerbating the situation, America’s prioritisation of its own MAGA agenda over historical alliances has left Europe and other previously US-aligned countries to build their own rather than collective resources.

If investors believe the post-war order is irretrievably compromised, they should consider investments that give exposure to these themes. Gold and precious metals for hard assets. Tokenisation and chips to enable digitalisation. Energy and power generation, rare earth elements and critical minerals, which will be in demand as both sides try to secure supply chains. And US and European defence stocks as the West joins in the new arms race.

Investors have many ways to access these ideas, including individual stocks, thematic exchange-traded funds (ETFs) or exchange-traded commodities (ETCs) that hold physical metals. Listed commodity futures and options are also becoming increasingly accessible, as major exchanges such as the Chicago Mercantile Exchange (CME) roll out mini and even micro contracts, which are 1/10 or 1/100 of the size of standard contracts and require less up-front capital. Such instruments are only suitable for experienced investors, but they offer a way to quickly add hedges or speculative positions to a portfolio – something that will become more valuable in a fast-changing world.

James Proudlock is managing director of OptionsDesk.

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I repeatedly come back to this subject because I think it is one of the most important yet overlooked issues in global finance. The geopolitical ramifications are enormous. Something that the Trump administration appears to understand in a way that previous administrations didn’t is this: it doesn’t matter if you issue the global reserve currency; if you don’t make anything, when the tide goes out, you are going to be caught swimming naked.

During Covid, the dangers of excessive dependence on China and its supply chains for critical or strategic products became apparent. It became clear again during the Ukraine war. Russia managed to manufacture munitions much faster than Nato.

Reshoring US industry is not something that can be done overnight. It is going to take years, if not decades – almost as long as it took to unwind in the first place. But the Trump administration is at least trying to kick-start the process with tariffs, a weaker dollar and, more subtly, the managed decline of the US dollar as global reserve currency.

As a result, neutral gold’s role as a global reserve asset is returning to prominence. History’s “golden” rule will soon apply again: he who has the gold makes the rules.

My argument is that China has considerably more than the 2,300 tonnes it says it does. That figure constitutes the world’s fifth-largest reserve of the yellow metal. The central banks of the US, Germany, Italy and France are the top four holders of gold reserves, with respective 8,133, 3,350, 2,451 and 2,437 tonnes.

How much gold does China have?

The People’s Bank of China (PBOC) is China’s main custodian, but other state entities, such as the China Investment Corporation (the sovereign wealth fund), the State Administration of Foreign Exchange and the Army, also own gold. In fact, having other state bodies hold gold is one of the means by which China is able to understate its reserves.

I’m going to use a slightly more conservative methodology, which means I will arrive at a lower estimate. Even so, the numbers will shock you. Remember that China is the world’s largest importer of gold, the largest consumer and the largest producer (in 2008 its output eclipsed South Africa’s). I am going to use round numbers, as they are more digestible, and when there is a spread (between 500 and 1,000 tonnes, say), I will take the middle number: 750.

It is impossible to know just how much gold China has imported, because so many transactions are private ones, particularly those that go through London, Switzerland or Dubai. Gold transactions in Hong Kong are more transparent.

However, most, although not all, of the gold that goes to China goes through the Shanghai Gold Exchange (SGE), which opened in 2007. Withdrawals from the SGE between 2007 and mid-2025 total 29,500-30,000 tonnes, based on aggregated data from the Shanghai Gold Exchange (SGE) and World Gold Council (WGC) reports. I’m going to overlook gold that made its way to China prior to 2007, although it’s quite easy to make the argument that this amounts to several thousand tonnes.

The SGE is just a flow metric, it should be noted. It does not represent total consumption. Some of the gold passing through will have been double-counted, either as a result of reselling and recycling, or because of China’s booming money-laundering business and the circular trade with Hong Kong. Estimates for double-counting range from 10%-30%. Let’s take the middle 20% figure (6,000 tonnes), and that leaves us with 23,250 tonnes of SGE gold.

As for the undisclosed gold, consider that the PBOC likes 400-ounce bars, as traded in London. These do not trade on the SGE, which uses smaller kilogram bars and 3kg and 12.5kg ingots. (400oz is about 11.3kg.)

So London imports will not go through the SGE, unless re-smelted, and are therefore counted in addition to the numbers above. Analysts mostly concur that while reported imports via London, Switzerland and Dubai total between 3,500 and 4,500 tonnes, another 3,000 tonnes (mostly post-2009, accelerating since 2022) have gone unreported. Add the 3,000 tonnes to the 23,250 of SGE gold and our total is now 26,250 tonnes.

Gold mining in China

Around 55% of Chinese gold production is state-owned, and we know from geological records that this century, China has mined roughly 7,500 tonnes.

Between 70% and 80% of Chinese production is sold through the Shanghai Gold Exchange, so we have already counted that. The other 20%-30% goes to the state. Using estimates from the mid-range, 25% of those 7,500 tonnes (1,875 tonnes) has gone to the state. The rest has been sold through the SGE. Add 1,875 tonnes to the total, and we reach a figure of 28,125 tonnes.

By the way, I have not included overseas Chinese gold production, of which there is a lot. Some of this gold is sold on international markets and never actually reaches China. But what does reach China is sold through the SGE and has therefore already been counted. Finally, we have to add in gold held in China, whether as bullion or jewellery, prior to 2000. The WGC estimates a figure of 2,500 tonnes in privately held jewellery. Added to domestic mining and official reserves, you get a figure of around 4,000 tonnes. This brings our grand total to 32,125 tonnes.

Demand for gold

Previously, I have argued that 50% of that gold would go to the state. That would mean roughly 16,000 tonnes – almost twice as much as the US’s reported 8,100 tonnes! Let me propose another methodology.

It stems from my conversation with Konstantin Kisin in the Triggernometry podcast a fortnight ago. Last year, investors and central banks comprised a respective 25% and 23% of overall demand for gold; the figures for jewellery and industry are 47% and 6%.

These figures of course change from year to year, with demand from investors and central banks being the big variables. But if we assume demand from China roughly matches global demand, that would mean that of the 32,125 tonnes, roughly 15,100 tonnes is jewellery; 8,030 is now bullion held by investors; 1,930 tonnes went into manufacturing; and the Chinese government has 7,400 tonnes.

This assumes Chinese gold has been allocated over the last 25 years according to the global habits of last year, which is almost certainly a bogus assumption. China is such a big manufacturer that demand from the Chinese industry may well be higher than 6%.

It’s also easy to argue that because the Chinese people like gold so much, and the state has been encouraging them to invest since 2007, that both Chinese jewellery and investment demand is higher than 47% and 25% respectively.

Similarly, because of dedollarisation, demand from the PBOC could be higher than 23%. In any case, I have been transparent about my methodology.

You can make up your own minds. The upshot is that China’s stated reserves of 2,300 tonnes are a gross underestimate.

In a way, it’s actually better for investors if China has less gold, because it means they have more buying to do, and that should help drive prices higher. Meanwhile, the Middle Kingdom’s stated 2,300 tonnes only account for 7% of its $3.4 trillion of overall reserves. To get above 70% and match the allocation ratios of the US, Germany, France and Italy, at $4,200/oz gold, it would need something like 18,000 tonnes. That’s a lot of buying yet to come, in other words.

If you take my assumption from previous years (that 50% of the gold that has gone to China via imports or production went to the state), then China has 16,000 tonnes of gold. That is twice America’s reported holdings of 8,133 tonnes.

This comes just as gold, at current prices, accounts for 30% of global foreign-exchange holdings, according to Deutsche Bank. The US dollar, meanwhile, makes up 40%. The euro’s proportion lies below 20%. This is quite the move: gold’s share was just 20% at the beginning of the year.

At $5,800 – a 33% rise from today’s price of $4,340 – gold overtakes the US dollar to become central banks’ largest holding. That assumes banks don’t buy any more, of course, when they will. A recent survey by the WGC found that 43% of central banks plan to increase their holdings over the next year, while 95% of reserve managers expected global central-bank holdings to rise over the next 12 months.

I was looking for parity between the dollar and gold in terms of reserve holdings at some stage in the next decade. We could see it within the next six months on current trajectories.

Why is China keeping its gold a secret?

And gold isn’t money, according to former Federal Reserve chairman Ben Bernanke. So why does China understate its reserves? China is still in accumulation mode. While it is buying, it wants the price low.

It certainly doesn’t want to cause it to spike.

If China were suddenly to say that it actually has 7,400 or 16,000 tonnes, rather than 2,300, it would send the gold price rocketing. More significantly, it risks sending the dollar into a plunge. China has $3.4 trillion-worth of dollars. It wants to preserve their value, presumably.

In short, coming clean on gold holdings would create enormous financial upheaval. It has that card, ready to play, should it ever need to, should it ever get into conflict with the US, for example. Money is the first thing that gets weaponised in war.

But for now it doesn’t need to. China is surely happy growing as it is, making things and selling them to the rest of the world, thus ensuring that the rest of the world becomes dependent on it. Why rock the boat? It’s on to a good thing after all.

“We must not shine too brightly,” as Deng Xiaoping is once supposed to have said. I understand that what he actually said amounted to “keep a low profile”, or “don’t draw attention to yourself”. Same difference. China doesn’t want to rock the boat, particularly while it’s still accumulating gold.

This is quite a shift that is taking place, and it is happening quickly. The upshot? You really want to own gold, overbought or not.

Dominic Frisby writes the investment newsletter The Flying Frisby (theflyingfrisby.com). His latest book is The Secret History of Gold: Myth, Money, Politics & Power, published by Penguin Business and available from all good bookshops.

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Paramount’s new boss is adamant he intends to keep “politics at arm’s length”. Good luck with that, says Vanity Fair. After this summer’s $8 billion takeover by Skydance, David Ellison, 42, is in “the hot seat” of an impassioned national debate about the future of the media juggernaut and whether it has been captured by Donald Trump.

As CEO of the newly formed Paramount Skydance Corporation, Ellison’s first big appointment has fanned the flames. In a controversial acqui-hire, he is paying $150 million to buy Bari Weiss’s news site, The Free Press, and installing the journalist entrepreneur as editor-in-chief of CBS News. Her pro-Israel and anti-woke views have fuelled speculation that she’ll act as an “ideological commissar” at CBS, helping to “enforce compliance” with the White House line.

This is certainly an “almost existential” moment for the near 100-year-old network, whose new owners have been accused of “kowtowing” to the president after settling a vexatious $16 million lawsuit to get the deal over the line, and cancelling comedian Stephen Colbert when he described it as a “big, fat bribe”.

Ellison is hardly the patsy “nepo baby” of a Maga-leaning patriarch he’s sometimes portrayed as. Described as modest, well-mannered and popular, he’s the opposite in temperament to his volatile, irascible father, Larry – who bankrolled Skydance’s takeover, and last month briefly became the world’s richest man thanks to the soaring share price of his company, Oracle. But he has inherited the latter’s drive – credited in Hollywood for building Skydance, which he founded in 2010, into one of the industry’s strongest independents. “I don’t know his plan, but I would bet on that kid any day of the week,” former Paramount Pictures president Adam Goodman told The Los Angeles Times. He has “an institutional knowledge and appreciation for the studio’s history, and a real love of movies”.

Born in 1983, to Larry Ellison and his third wife Barbara Boothe, David grew up on a horse farm in the San Francisco Bay area and was an intern at Oracle during high school. He eventually enrolled at the University of Southern California’s School of Cinematic Arts, dropping out to act in a $60 million movie about World War I pilots, Flyboys, part-financed by his father, which spectacularly flopped.

There’s no question Ellison “was gifted a head start”, says Bloomberg. Not many young Hollywood wannabes get to raise $350 million from JPMorgan for a production company. But it’s what he did with the cash that counts. He got a taste of success right at the start with the release of the Coen brothers’ True Grit, which grossed more than $252 million globally, following that up with several other blockbusters.

Still, the huge Paramount deal takes things to a new level. To secure it, Ellison had to wrestle with the Redstone family and their shareholders – while trying to prevent Trump from derailing the deal. “The reward for his patience is a company in decade-long decline,” stuffed with ancient networks and a “withered” film studio.

David Ellison is gunning for Warner Bros

Less than two months after swallowing one ailing media giant, Ellison is now looking to take down a much bigger one. Nothing captures his ambition better than his interest in Warner Bros. If he wins the $50 billion giant, the combined behemoth would boast the largest share of the national TV advertising market, the biggest movie studio output and a pair of streaming services (Paramount+ and HBO Max) that together sell more US subscriptions than even Netflix, says The Economist. Add CNN to CBS – and throw in Larry Ellison’s interest in the US operations of TikTok – and the family will become a mighty force in both old and new media. The question is what they do with that power.

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My hope when markets began to wobble earlier this year was that the spotlight would start to shift a little bit away from US equities. This isn’t because I’m a committed bear on America. Yes, I am uncomfortable with how much a typical global portfolio will now have in pricey-looking US stocks when domestic politics are clearly becoming less business-friendly. However, that is about managing risk rather than a firm certainty that the tech boom has yet run its course.

Instead, my concern is that the amount of commentary that hinges on the US market, US economy and US politics – indeed, anything wrapped in the stars and stripes – has become monomaniacal. Markets have far too little idea what is happening elsewhere. Take the entire UK stock market, which is dying in part because there is so little attention paid to the small- and mid-cap segment that it no longer functions. The number of take-private deals at large premiums to the undisturbed price testifies to that.

When MoneyWeek was founded 25 years ago, analysis and commentary in the industry and the media included a range of sectors, countries and assets every week. Coverage began to decline after the financial crisis and worsened as the tech boom and the strong dollar sucked in capital. Now, many areas are neglected for long periods.

Investors are noticing emerging markets again

Consider emerging markets. I wrote about this shift relatively recently, but it bears repeating. After ages in the doldrums, they are having a good year: the MSCI Emerging Markets index is up by 16% in sterling terms in the first nine months (developed markets are up 8%, the US is up 6%). Yet that scratches just the surface of the changes: within the EM universe, India – the main bright spot of the past decade – is off 8%, while China has rebounded 29%. Korea is up 44%. Emerging Europe and Latin America are all doing very well. One cannot argue that there have been major economic or political shifts in most of these countries to change the case for them. The conclusion is that many are simply being noticed once more as flows into the US slow down.

The wider point here is not about emerging markets, but about the merits of keeping some of your portfolio in assets that are sensibly valued even when they are lagging. As private investors, we don’t need to worry about measuring our performance against a benchmark. Our goal is not to wager everything on the top-performing stocks and collect a performance fee. We aim to maximise our odds of earning a solid return and minimise our risks of devastating losses. Paying attention to out-of-favour assets is part of this.

As a final note, the MoneyWeek Wealth Summit – our annual event and MoneyWeek’s 25th birthday – on 7 November in London will run along these lines. Yes, it’s called Turmoil, tariffs and Trump 2.0. Yes, we have a session on AI. But our speakers will be looking at growth, value and wealth-preservation opportunities to suit a world that is mostly not America.

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There may be few things that UK prime minister Keir Starmer and US president Donald Trump agree upon, but one of them is the benefits of nuclear power. The centrepiece of Trump’s recent state visit to the UK was a series of agreements to “accelerate the build-out of new nuclear-power stations and support billions in private investment into the technology”, as Jean-Hugues de Lamaze, manager of Ecofin Global Utilities and Infrastructure Trust, puts it. With the rise of AI leading to what Tancrede Fulop, a senior equity analyst for Morningstar, calls “a growth in energy consumption not seen for decades”, they are not the only enthusiasts.

The debate over energy policy has changed dramatically in recent years. “For the last two decades, we’ve been talking about transitioning from a certain set of fossil fuels to cleaner technologies,” says Mobeen Tahir, director of research at WisdomTree. But in the past few years we’ve come to realise that at the same time we also need to “increase the amount of energy we produce to deal with the demands of the digital economy”. The problem is that these two goals seem contradictory. Renewable energy may be environmentally friendly, but it is not as reliable – wind power and solar energy only generate electricity when the wind is blowing or the sun is shining.

Traditional fossil fuels generate power as and when needed, but they are polluting and causing climate change. The solution is nuclear power, which provides the best of both worlds – “addressing the intermittency issues of renewables without compromising on the environmental credentials”, says Tahir. He argues that you can even make the case that nuclear power is more environmentally friendly than most renewables as a nuclear-power plant produces more energy per square foot, which means that you also use much less land.

Nuclear power is also by some measures more economic than most fossil fuels. The fixed costs of building a nuclear reactor are substantial, says Greg Eckel, portfolio manager of Canadian General Investments, but once the reactor is up and going, “it is probably the cheapest form of energy on an ongoing basis”. Eckel reckons that the most likely scenario for the future of energy is now one where nuclear does the bulk of the work, “allowing other renewable sources of energy to just fill in the gaps”.

Nuclear power and Big Tech’s thirst for energy

The need for a clean, stable source of power is particularly pressing in the technology sector, where the AI revolution has led to an explosion in the number of power-hungry data centres, says Tyler Rosenlicht, portfolio manager for global listed infrastructure at Cohen & Steers. And as well as requiring a huge amount of additional energy, the centres also require a high degree of reliability. After all, if you are a technology executive “the last thing you would want would be for your data centres to shut down suddenly because the power supply either cuts out, or starts fluctuating”.

Indeed, as Rosenlicht points out, the tech companies are so eager for the sort of “tried and tested” energy that nuclear power can provide that they aren’t waiting for new plants to be built, but doing deals directly with nuclear-power companies. Sometimes the aim is to prolong the life of power plants due to expire. In other cases, tech companies have underwritten the cost of building new reactors, either through upfront payments or by agreeing long-term contracts. Both of these are important as the need to make a large capital investment for an uncertain future has always been one of the barriers holding back the spread of the technology.

Pretty much all the major companies, such as Amazon, Apple and Meta, have made at least some long-term agreements with nuclear power, with Amazon and Alphabet (Google’s parent company) striking several deals last year. This isn’t a one-way street either – tech company Palantir has said that it plans to use its expertise to develop AI software aimed at accelerating the development of nuclear reactors, “which is exactly the sort of support that we need to make the whole industry more efficient and exciting”.

Of all the deals between tech companies and nuclear utilities, the most symbolic is Microsoft’s with Constellation Energy to reopen Three Mile Island, which shut in 2019. It could be back up and running as soon as 2027 and provide energy for Microsoft’s data centres for the next two decades. It’s symbolic because Three Mile Island was the site of a radiation leak in 1979, just 12 days after the release of The China Syndrome, a film about a fictional nuclear meltdown. That “created a lot of negativity about nuclear power in the mind of the public”, as Tahir says. Three Mile Island’s reopening may be a turning point.

Changing attitudes to nuclear power

The impact of Three Mile Island (as in the case of Fukushima later) was widely exaggerated and features more strongly in the public mind than nuclear power’s stellar safety record. “The facts on the ground have always been on the side of the industry, but these facts have taken a long time to be accepted by the wider public,” says Marco Visscher, author of The Power of Nuclear: The Rise, Fall and Return of Our Mightiest Energy Source. Now, however, he senses that the war in Ukraine and the failure of climate policy has forced the public and policymakers to be more pragmatic.

Visscher points to opinion surveys showing that “across the world, more people are in favour of nuclear power than oppose it”. In the United States, for example, polls show that 57% of people want more nuclear power, up from 43% just three years ago. Similarly, support for nuclear power in the Netherlands has gone up by half in the space of a few years; 85% of those in Belgium now oppose the planned decision to phase out nuclear power and want to keep it. Support for nuclear power is also high in the UK, with three people supporting nuclear power for every one who opposes it.

Government policy is starting to follow suit. As well as the recent agreement between the US and UK, several European countries, which “had historically been unfavourable to nuclear technology, are now thinking about reversing this opposition”, says de Lamaze. He notes that Italy’s Council of Ministers approved a draft law in early 2025 to reintroduce nuclear power nearly 40 years after it was effectively banned following a nationwide vote in 1987.

Joachim Klement, head of Strategy at Panmure Liberum, notes that many countries around the world are removing restrictions on nuclear power. This includes Japan, which is now starting to reopen the plants mothballed following the Fukushima disaster. Germany may be about to follow suit. Chancellor Friedrich Merz has agreed to allow nuclear power to be treated as a renewable sources of energy on an EU level and is considering reversing Angela Merkel’s infamous shutdown of Germany’s nuclear sector.

Many Asian countries are also thinking about beginning their own civil nuclear programmes from scratch, says Klement. Indonesia is one example, as is Malaysia, which is “hoping that nuclear power can help it fulfil its dreams of becoming Asia’s data-centre hub”, says Klement. Malaysia has already agreed contracts with international companies to start developing reactors. South Korea and India, which are already big investors in nuclear power, are also ramping up their efforts to increase production.

The rise of small modular reactors

There is a wave of optimism regarding the emerging technology of small modular reactors (SMRs). As Klement explains, their small size – they have a typical output of around 300 MW-400 MW, compared with 3GW for a large reactor such as Sizewell C – means they obviously take up much less physical space. This, in turn, means “you can locate them right next to an industrial park or major data centre” and also use the heat they create for other industrial purposes. They can also be up and running much sooner than a power plant, which can take as long as a decade to build, says Fulop.

The vision of a “tennis-court-sized nuclear reactor that is hooked up to a data centre and feeding it clean, stable, predictable energy all day every day” has the potential to transform the nuclear industry, says Rosenlicht. He emphasises that, although this might sound like science-fiction, there’s no question that the underlying technology is “viable”. Indeed, a form of SMR has been in use for decades to power nuclear submarines.

With the technology viable, the key remaining question is cost – and SMRs are still “extremely expensive”, says Rosenlicht. Still, the recent surge in SMR-related investment may help solve this problem by starting to make them more cost-effective. Rosenlicht expects SMRs to become competitive with conventional reactors sometime between 2030 and 2035. This may seem to be a bit longer than you might expect given some of the rhetoric around the technology, but “it’s not that long when you consider that the increased demand for from AI and other technologies is a long-term trend that is not going away”.

Indeed, in the very long run, small modular reactors could end up being much cheaper than conventional reactors. Their small size means they could be built into a factory much like a jet engine is built into a aeroplane rather than having to be assembled onsite, says Klement. He notes that past experience in other industries, such as aerospace, suggests that “while the first ones to be produced will be extremely expensive, the cost to produce each additional SMR will quickly plummet as the companies making them learn from their mistakes”. Once SMRs are up and running, they could end up producing electricity for a third or less of the cost of larger reactors.

Potential winners from the nuclear summer

So, who are going to be the big winners from this nuclear summer? Perhaps the most obvious group of companies to benefit will be those that mine the uranium that is needed to power these nuclear plants. John Ciampaglia, CEO of Sprott Asset Management and partner with HANetf for the Sprott Uranium Miners UCITS exchange-traded fund, notes that the current fleet of nuclear-power plants require a total of around 180 million pounds of uranium. Current production of uranium is only 150 million pounds. Even now, we are in a supply deficit as the increase in the uranium supply has been slower than expected.

Ciampaglia thinks the current gap between demand and supply could increase even further. Worldwide demand for uranium is expected almost to double to between 300 million and 350 million pounds over the next 15 years as countries “expand capacity through new builds, life extensions of shuttered plants and restarts of shuttered facilities”. There are signs that investors are starting to allocate more money in an attempt to close the gap, but the mismatch means that uranium miners and the companies developing new mines are “well positioned” to get a good price for the uranium that they extract for some time to come.

The miners aren’t the only companies who stand to do well from the revival of interest in nuclear power. Tahir reckons that all parts of what he calls the “nuclear value chain” will benefit. This includes the “midstream companies, which do things such as converting raw uranium into something that can be used to carry out the nuclear reactions that produce energy”. Other midstream tasks include storage, building nuclear reactor, as well as providing services such as maintenance, safety checks and even the decommissioning of plants that have reached the end of their useful life.

The aspect of the nuclear supply chain that investors are most interested in, however, is the companies that Tahir calls the “innovators” – the firms that are developing the new technologies that will transform the industry. Many of them are not generating revenue yet, but Tahir thinks they are worth investing in as they “have a huge amount of potential growth ahead of them”. As well as the companies involved in small modular reactors, there are other interesting technologies, such as attempts to recycle the uranium used in the process (at the moment, only 5% of the nuclear fuel actually gets used in energy generation).

The best plays in the nuclear sector

One way to invest in the nuclear sector is through an exchange-traded fund such as VanEck Uranium and Nuclear Technologies ETF (LSE: NUCL). This holds 25 companies, mostly from the US, Canada and Japan, including uranium miners, companies designing nuclear reactors (both large-scale and small modular reactors) and utilities. Its largest holdings include firms such as exploration company NexGen Energy and small modular reactor developer NuScale Power, as well as companies such as Cameco and Oklo (see below). The fund has an average price/earnings ratio of 26 and a total expense ratio (TER) of 0.56%.

As the name suggests, the Sprott Uranium Miners ETF (LSE: URNM) focuses on 35 companies that mine uranium. Its TER is 0.85%.

Cameco (Toronto: CCO) is the second-largest uranium miner in the world. Greg Eckel of Canadian General Investments is particularly impressed that Cameco “has learned to anticipate supply and demand and adjust production in light of how the market is evolving”. He also likes the fact that the company has broadened into other parts of the supply chain, owning nearly half of Westinghouse, for example, “which does the full cycle of designing, building, maintaining and decommissioning nuclear reactors”. Cameco trades at an aggressive 55 times 2026 earnings, but this is justified by the fact that revenue has more than doubled since 2021.

A purer play on the development of advanced nuclear technology is Oklo (NYSE: OKLO). As stated in the main story above, WisdomTree’s Mobeen Tahir likes Oklo, as it is one of the leading companies involved in the development of small modular reactors. Its first is planned for 2027. It is also finding ways to recycle nuclear waste. Oklo is a slightly riskier investment as it is currently losing money, but there is plenty of cash on hand to tide it over until profitability is reached in the next couple of years.

Another leader in the development of small modular reactors is Rolls-Royce Holdings (LSE: RR). The company is currently best known for its engines and defence products. The UK government (among others) has selected Rolls-Royce as one of its preferred partners to develop small modular nuclear reactors over the next decade. It trades at 36 times 2026 earnings, but this is more than justified by its rapid turnaround in recent years and its growth potential.

Few utilities specialise solely in nuclear power, as Morningstar’s Tancrede Fulop points out. Korea Electric Power Corp (Seoul: 052690), for example, uses gas and coal to generate power and is known across the world for its expertise, but it also uses nuclear power to generate electricity, and builds and designs nuclear-power plants around the world. As well as projects in the US, it is behind plans to build the first new reactor in Japan since the Fukushima disaster. Trading at less than four times current earnings, it is available to Western investors via depositary receipts traded on the New York Stock Exchange (NYSE: KEP).

Another utility that Fulop likes, and which is located a little closer to home, is Centrica (LSE: CNA). At the moment, it makes around 20% of its operating profit from nuclear power, including a 15% stake in the Sizewell C nuclear power station that is being built in Suffolk. This should increase as it has agreed to invest in 12 new nuclear-power plants that X-Energy is planning to build in Hartlepool. Centrica trades at 11.4 times 2026 earnings, with a dividend yield of 3.6%.

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They say health is wealth, but healthcare investors might disagree. The sector has had a tough time over the past few years. Policy noise in the US has been a major headwind recently, but even before that investors’ focus was drawn elsewhere as areas such as technology raced ahead. “For the 30-year period from 1989-2019, the US healthcare sector closely tracked technology returns, and with considerably lower volatility,” notes Michael Cembalest in a research paper for JPMorgan. “Things have changed since then.”

The MSCI World Health Care index has delivered five-year annualised returns of less than 6%, lagging the broader MSCI World index at 13%. The MSCI World Information Technology index has delivered 17% over the same period. Sentiment about the sector has soured further in 2025 – and it is easy to understand why. The US is the world’s largest healthcare market and when Donald Trump was inaugurated in January, he promptly appointed a vaccine-sceptic as his health secretary. This set the tone for what was to follow.

There are three key threats: efforts to control drug pricing, tariffs and possible tax changes. There is little doubt the sector is trading cheaply. The question is whether it offers good value in light of the risks.

Three big, beautiful policy risks

Donald Trump thinks US customers are being ripped off when it comes to drug pricing. He told reporters that a friend in London pays $88 for a weight-loss treatment that costs $1,300 in New York. So earlier this year, he published an executive order demanding “most-favoured nation” prices for US customers – an attempt to bring US prices in line with the lowest costs offered elsewhere. Pharmaceutical companies have been threatened with “every tool in the federal government’s arsenal” if they refuse to step up. The threat is vague, but has nevertheless created nervousness.

The majority of global pharmaceutical profits come from the US market – around 70%, according to the University of Southern California. Rather than cutting prices in the US, companies could simply decide to pull out of less lucrative markets, reducing access to drugs for patients and denting pharmaceuticals’ profits.

The second threat is tariffs. Trump is keen to boost US manufacturing and is using tariffs as a way of doing so. He has announced a 100% levy on imports of branded or patented drugs from 1 October, although manufacturers that are building a site in America will be exempt. Tariffs aren’t the only tax investors need to consider either. The Trump administration also has an eye on corporate income-tax loopholes that pharmaceutical companies have been exploiting. Pfizer paid zero in federal taxes in 2019 despite selling $20 billion of drugs in the US, according to an investigation from the US Senate Finance Committee. This was due to round-tripping – a mechanism whereby income from US sales is treated as foreign for tax purposes. Ways of achieving this can include using offshore manufacturing or shifting intellectual property rights to tax havens. “We’re going to try and fix a whole bunch of these tax scams,” said commerce secretary Howard Lutnick, speaking on a podcast in March.

Is this all as bad as it sounds?

Some of the risks might have been overstated. Look at “most-favoured nation” pricing. There is scepticism about whether Trump will actually be able to implement it on any kind of scale. In his first term, he tried to control the price of a handful of drugs covered by Medicare, but was blocked by a federal judge. Wide-sweeping price controls this time would almost certainly require the support of Congress – something Congress doesn’t seem to have the appetite for.

Meanwhile, pharma companies have been making moves to try and get ahead of tariffs. The measures that kick in from the start of October only affect companies that aren’t building a site in the US. In recent months, scores of companies have been making commitments. In July, Swiss and UK giants Roche and AstraZeneca both pledged $50 billion in investments in the US over the next five years, building and expanding research and development and manufacturing sites. AstraZeneca said its goal is for 50% of revenue to be generated in the US by this date.

US pharma companies have also made big commitments to domestic manufacturing. Earlier this year, Eli Lilly pledged an additional $27 billion for four new plants, and Johnson & Johnson announced a $55 billion investment over the next four years.

While this will help the industry navigate tariffs, it is possible that some companies will lose tax advantages by moving their manufacturing facilities to the US. Karen Andersen, research director at Morningstar, says analysts have been building a ramp up in tax rates into their models over the next few years as the reorganisation goes through.

Healthcare stocks are going cheap

Headwinds in the sector mean valuations look cheap. The MSCI World Health Care index is trading at around 16 times its forecast earnings, compared with 20 times for the MSCI World index. Individual names are trading on lower multiples. “Pharma stalwarts such as Merck, Pfizer and Bristol Myers Squibb trade at forward price/earnings (p/e) ratios of just eight to nine times, and biotech trades at one of the largest valuation discounts in the market,” notes Cembalest. The question is whether it is worth it given the risks.

On the one hand, we are starting to get a better sense of how Trump works. Recent stockmarket reactions have been less pronounced as a result. In July, Trump sent letters to 17 pharmaceutical companies threatening repercussions if they didn’t adopt most-favoured nation pricing. Investors largely shrugged off the news. Markets have also taken the latest tariff announcement in their stride. “Investors see more bark than bite,” says Lale Akoner, global market analyst at investment platform eToro. The objective of tariffs is to force supply chains onshore in the US – not to raise prices at the pharmacy counter. “European pharma gets nudged to localise, while US firms gain a policy tailwind.” That said, valuations are likely to remain suppressed for as long as the policy outlook is uncertain. Consider most-favoured nation pricing. Trump’s plan sounds overly ambitious, but “the problem is that the impact is so big that it’s a difficult risk for the market to ignore, no matter how unlikely it might be,” says Andersen.

Is investing in healthcare stocks worth the risk?

One fund manager who has been investing in the field for 25 years told me that every time there is nervousness around pricing in the US, the sector underperforms. “Before buying more of this stuff, investors need clarity on the earnings forecast,” says Gareth Powell, head of healthcare at Polar Capital. We could get more certainty over the coming months. The deadline given to pharma giants for complying with Trump’s price demands was 29 September. Further detail on tariffs has already emerged, but there are still questions about how regions with pre-existing trade deals will be treated.

“Headlines about the imposition of 100% tariffs on branded drugs appear to contradict the previously discussed 15% cap for European firms,” say Ailsa Craig and Marek Poszepczynski, co-managers of the International Biotechnology Trust. Until these pieces of the puzzle fall into place, bargain-hunting in the sector requires bravery.

On the plus side, there have been some bright spots. Biotech investors point to pro-industry noise from the FDA regulator, including a pilot programme to reduce the review time on new drugs and therapies from 10 to 12 months to just one to two, if they meet certain criteria. This is a marked improvement from earlier this year when investors were worried that mass firings at the FDA would result in a slower approval processes.

Active investors can also adjust their portfolios to manage the risk associated with policy threats. “The way I would look at it is on a case-by-case basis,” says Andersen. Is the company particularly reliant on government reimbursement for one of its key products? Does it have a significant manufacturing footprint outside of the US? One way the International Biotechnology Trust is managing the risk is by tilting into rare diseases, with more than 30% of the portfolio allocated to this theme. “This tends to be much more similar in price in both Europe and the US,” says Craig, meaning therapies should be less exposed to Trump’s interference with drug pricing.

Where to invest

If you are looking for broad exposure to the sector, the Polar Capital Global Healthcare Trust (LSE: PCGH) is one to consider. The trust has large overweight positions in healthcare equipment and biotechnology. It is underweight on pharmaceuticals relative to the benchmark – a position driven by concerns about the impact of Trump’s pricing threats on mega-cap pharma companies. Those who prefer passive exposure could look at the Xtrackers MSCI World Health Care ETF (LSE: XDWH), although today’s volatile policy backdrop could better lend itself to active stockpickers.

The area that looks most interesting in my view is biotech. This is where most of the innovation happens, with big pharmaceutical companies swooping in to acquire biotech firms that are developing a promising drug. We should see more merger and acquisition (M&A) activity over the coming years as a significant patent cliff-edge is looming for big pharma. Drugs worth $180 billion in annual revenue (equivalent to 12% of the global market) will be coming off patent in 2027 and 2028, according to figures cited in the Financial Times. This is putting pressure on pharma companies to shop around for new products in the biotech sector.

The International Biotechnology Trust (LSE: IBT) gives exposure to this part of the market. The managers have had strong success identifying acquisition targets, with 30 portfolio holdings having been snapped up through M&A since 2020. Investing in biotech is a risky business, but the trust is heavily weighted towards companies with drugs in late-stage clinical trials, as well as those that have completed trials already and are waiting for approval from the regulator. This makes it a good pick.

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Gold prices are surging once again, and this time, they are being spurred on by a constitutional gridlock that has caused the US government to shut down.

Republicans in the Senate had been pushing to pass a bill that would have extended government funding, but failed to attract the Democrat support needed to reach the 60 votes required.

Democrats were holding out for health care policy reforms in order to lend their support to the bill. Without either side having budged, both are now blaming each other for the shutdown, which will see certain parts of the US government temporarily cease to function.

This is the first time the US government has closed down since 2018, during Donald Trump’s first term in the White House.

Assuming the shutdown isn’t too lengthy, economists don’t expect it to have a major impact on the US economy. Ryan Sweet, chief US economist at Oxford Economics, for example, has stated that the shutdown won’t change the company’s outlook for US GDP, unemployment or inflation in the near term.

But Sweet did say it could impact the timing of any future Federal Reserve (Fed) rate cuts.

“The Federal Reserve emphasized the September move as an insurance cut,” said Sweet. “A shutdown would likely leave the central bank in a fog about the labor market, fueling support for an October cut rather than risk falling behind and having to cut more later.”

Falling US interest rates are typically a bullish signal for gold investors. But this isn’t the only reason why the US government shutdown is boosting gold prices.

How the US government shutdown is boosting gold prices

The gold price rally has been ongoing since 2024. The US government shutdown is just the latest development that is fuelling its run.

It has helped make September a standout month for gold, though. Gold prices have increased 12% from $3,476 on 1 September to their latest all-time high of $3,895 a month later.

Gold is typically seen as a safe-haven asset. Political instability of any kind tends to see investors turning to the precious metal in order to protect their wealth.

That applies double when it comes to the US, given the country’s dominant position in the global economy and the dollar’s status as the world’s reserve currency.

"The US government shutdown has increased investor uncertainty, delaying Friday’s key jobs data," said Russell Shor, senior market analyst at Tradu.com. "This has strengthened demand for gold as a safe-haven asset, while expectations of further Fed rate cuts have pushed prices higher."

The shutdown is also fuelling pessimism over the US dollar, in which gold prices are typically quoted.

“The dollar slipped again overnight,” said Emma Wall, chief investment strategist at Hargreaves Lansdown on 1 October, the first day of the government shutdown. “The outlook is not positive if previous lockdowns are any indicator.”

This latest fall in the dollar further extends one of the other longer-term drivers of the gold price rally: ‘dedollarisation’.

“Emerging markets have turned away from the US dollar as a store of reserves in order to reduce their dependence on the US, instead favouring gold,” said Wall.

While a weakening dollar inherently pushes up gold prices (as it takes more dollars to buy the same amount of gold), the recent rally has transcended this impact.

“Gold prices recently hit an all-time high in real terms, exceeding the safe-haven asset’s previous inflation-adjusted peak from 1980,” said Shannon Saccocia, chief investment officer, private wealth at Neuberger.

What the US government shutdown means for gold and other investments

While gold prices rose in the days leading up to the shutdown, the reaction of the stock market was more reserved.

The S&P 500 rose for three consecutive sessions up to 30 September, the eve of the government shutdown. At time of writing, S&P 500 futures are down 0.5% on the morning of 1 October, suggesting that these gains are about to reverse.

“Historically shutdowns have been bad for the US dollar, bad for US equities, and bad for bonds too,” said Wall.

If the shutdown becomes drawn out, it could have a negative impact on the US economy.

“The economic costs increase the longer the shutdown drags on,” said Sweet. “Our estimate is that a partial government shutdown reduces GDP growth by 0.1-0.2 percentage points per week.

“For context, a shutdown that lasts the entire quarter, which has never occurred, would reduce Q4 real GDP growth by 1.2-2.4 percentage points.”

Andrew Van Sickle: After more than a decade of poor performance, emerging markets (EMs) have staged a comeback this year. The benchmark MSCI EM index has gained more than 20% in US dollar terms. What has brought out the bulls?

Gustavo Medeiros: I think there are three key drivers here. The first is that we had historically low valuations at the start of the year. The second is that over the last 18 months or so, earnings per share have started to climb, helped by healthy growth in several countries and buoyant industries such as AI and semiconductors.

Earnings per share in the MSCI EM Index are now expected to rise from $80 to $96 or so this year. Profit growth has eclipsed that of the MSCI World index over the past four quarters. The third source of support is the weaker US dollar.

Andrew Van Sickle: That usually bodes well for EMs, which are risky assets; a buoyant greenback, along with high US interest rates, bolsters the appeal of safer US assets. Have global investors become disillusioned with America?

Gustavo Medeiros: America has the world’s reserve currency and the deepest capital markets in the world. So the key determinant of global asset allocations will be how the biggest market is performing in absolute and relative terms. High valuations and the tariffs on “liberation day” unnerved investors, reminding them that they needed to diversify away from the US. Structural improvements in developing economies, notably lower inflation, and a shift to pro-market policies post-pandemic, have also helped bolster sentiment. There have been more upgrades than downgrades of EM sovereign debt for some time now, for example.

Meanwhile, although EMs are traditionally comparatively dependent on trade, with large shares of exports as a percentage of GDP, Liberation Day at least tempered the uncertainty. It became clear that tariffs would not fall below 10% but were also unlikely to exceed 30%. On paper Mexico and Vietnam are the most vulnerable, with exports to the US worth 25% of GDP in each case – although a pre-existing Trump-originated deal in the former, and a strategic partnership with the US in the latter, tempers risk. Their stock markets have rallied 40% this year, as have those of Southeast Asia, the next most vulnerable economies.

Andrew Van Sickle: Shall we take a closer look at the structural changes in EMs, a recurring theme for 10 to 15 years now? Everyone used to think of EMs as commodity-exporters heavily geared to global growth, but there’s far more to the story these days.

Gustavo Medeiros: Yes, there is a wide array of supportive factors. In Asia, India and Indonesia are two examples of major economies that have gained momentum through structural reform. Chinese technology, chipmaking in Taiwan and AI are also boosting EM growth. In Latin America, there are many high-quality undervalued companies that have embraced digitalisation and have enormous target markets, yet politics has obstructed the investment opportunity. A series of coming elections are likely to result in a shift towards a more free-market approach, which bodes well for profits and interest from global investors.

Peripheral Europe and central Asia should benefit from a strong boom in capital expenditure on defence, energy and infrastructure coming from Europe, a result of Europe’s attempt to become more self-sufficient. Meanwhile, a round of fiscal consolidation in Ghana, Nigeria and Egypt, following the tight squeeze imposed on Argentina by president Javier Milei, is good news for some of the smaller, more exotic markets.

Andrew Van Sickle: I remember being struck, during the pandemic, by EM central banks being quicker off the mark when it came to squeezing out inflation by raising interest rates than their developed-market counterparts. Overall economic management has improved greatly in EMs.

Gustavo Medeiros: Economic policy has been much better, much more sensible over the past five years in EMs. They raised rates rapidly to counteract the global boost to inflation and avoided quantitative easing; they were mostly restrained when it came to fiscal stimuli, too and quicker to consolidate their deficits. They clearly learnt from the debt crisis of the 1980s and 90s and opted for prudence this time. That leaves them well-positioned for strong and sustainable growth.

Andrew Van Sickle: Let’s zoom in on some of the major economies and markets now, starting with China. A drift towards authoritarianism and the fear that it could turn into another Japan have been two key bearish factors. How would you assess the situation?

Gustavo Medeiros: One simply has to factor in that China has a different political system. The key is the extent to which the private sector is allowed to flourish. And here, the news has improved over the past year. We have become more optimistic recently. Since last autumn, policymakers have been far more willing to support enterprise. It started with measures to backstop the real-estate sector, which has been a major drag on activity. Then the central bank allowed firms to borrow cheaply to buy back their undervalued stocks, accelerating a trend towards buybacks that companies had started themselves. That was a key turning point for us.

The state is also supporting developments in technology, with DeepSeek’s large language model being rapidly adopted in both the public and private sectors. The government hopes to harness AI’s potential to accelerate progress in areas where China is already leading, such as robotics, electric vehicles and cutting-edge biotechnology. The big picture is that the government used to favour particular industries, but now seems to be keen to bolster the entire private sector.

And this is very important. The main reason countries get stuck in the middle-income trap is a failure to innovate, not adverse demographics or other factors. This is clear to Beijing, which is why the leadership keeps on pushing to make their economy more productive, and keeps on pushing to be at the forefront of technological development in many industries. Beijing is also acutely aware that some sectors are oversupplied, with rampant competition rendering margins razor-thin. The banks have fuelled the boom in capital expenditure, and could now take measures to help sector leaders buy up less productive rivals and perhaps rein in lending to struggling mediocrities. The least productive companies should gradually fall by the wayside. These measures are meant to address fears over the Japan-style zombiefication of the economy.

Andrew Van Sickle: Very encouraging. Taiwan is still the second-biggest weighting in the MSCI EM index. That’s due to chip giant TSMC, isn’t it? It’s the AI story.

Gustavo Medeiros: It has the tightest grip on the sector thanks to its ability to produce cutting-edge chips economically, with cutting-edge equipment. It would take years and a vast amount of capital for another company to emulate them, so that provides the company with an enduring competitive advantage; a deep “moat”. While Google could face a threat in search and Apple would struggle if another firm comes up with a gadget that is better integrated with AI than Apple’s range, I don’t see TSMC’s lead being eroded anytime soon.

Andrew Van Sickle: Let’s look at India, which you have described as the most exciting structural-growth story in EMs.

Gustavo Medeiros: No exciting structural story goes in a straight line, and there are now some wrinkles in the case of India. Around 18 months ago, valuations became extremely overpriced, which has been a headwind. And the pace of growth in capital expenditure, having surged in prime minister Narendra Modi’s first term as investment in infrastructure galvanised investment in the private sector, has ebbed.

A bright spot at present is the banking sector. Valuations are reasonable, private banks have done well with the adoption of fintech and have been able to deliver strong growth. Meanwhile, inflation is under control and short-term interest rates have been cut. The interest-rate curve is thus steepening, which is good news for banks’ net-interest margins. President Donald Trump’s tariffs are another headwind for now, although the economy is relatively insulated from global trade, given the large consumer sector.

The long-term outlook is still favourable, however, given the demographics, the dynamic private sector (the service sector will be able to exploit AI) and the gradual evolution of a manufacturing sector in recent years. Apple, for example, have said they will make all iPhones sold in the US in India by 2030.

Andrew Van Sickle: Finally, you have described Indonesia as a structural-reform story trading at crisis-level valuations.

Gustavo Medeiros: A year ago, power was transferred to president Prabowo. He is market reform-orientated, like his predecessor Jokowi, but investors appear to have been spooked by two policies. One was free school meals. This is sensible, but it took up a large share of the budget in a traditionally low-tax, small-government economy.

Then he consolidated state-owned companies into a sovereign wealth fund in order to gather their dividends together and allocate the money to the economy more effectively. Again, sensible enough, but investors were nervous because of the recent scandal surrounding Malaysia’s 1MDB sovereign wealth fund. Just as investors were starting to digest the uncertainties, the protests on the streets of Jakarta led to the exit of experienced finance minister Sri Mulyani. She was seen as one of the safest pair of hands across EMs, so even though her successor is likely to keep her policies unchanged, her exit was another blow to confidence.

Still, the broad pro-market direction is unchanged, and the long-term structural-growth story remains compelling. Indonesia has lots of metals that will be crucial to the global energy transition, while demographics are also a tailwind.

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Since World War II, the two landmark events in the evolution of money were Bretton Woods in 1944, when the dollar became the de facto global reserve currency, and then the Nixon Shock of 1971, when the US abandoned the last vestiges of its gold standard. There is a shift currently taking place in the global financial landscape, the ramifications of which might, I suggest, prove equally significant.

You might feel it is unimportant. You might feel it is hugely significant. Either way, before making your mind up, you need to understand what is taking place, so that you can position yourself and your family, if you deem it appropriate. You may even be able to profit handsomely from the transition. Here I explain US dollar policy: what is going on and, more importantly, where it is all heading.

Donald Trump solves Triffin’s Dilemma

The US government, as we know, wants to bring manufacturing back on shore. President Donald Trump has said it repeatedly, his vice-president, J.D. Vance, has said it, and so has his Treasury secretary, Scott Bessent, who keeps reminding us that it is now time to prioritise Main Street over Wall Street.

Part of the reshoring of US manufacturing involves tariffs, as we now know all too well. Part of it involves weakening the US dollar to make US exports more competitive. Again Trump, Vance and Bessent have all said this. However, there is a problem, and that problem has a name: Triffin’s Dilemma, named after Robert Triffin, the Belgian-American economist who first identified the paradox in the 1960s.

You might think it’s an advantage to issue the global reserve currency. You can issue dollars. Everyone else has to work for them. The French called it “America’s exorbitant privilege”. But this was a status the US engineered for itself during the Bretton Woods Agreement that determined the monetary order at the end of World War II. What has happened, however, is that it has made the US fat and lazy, especially since 1971 when the US abandoned the ties of the dollar to gold.

To supply the world with dollars, the US must run trade deficits. That is to say it must buy more than it sells in order that US dollars can make their way out into the world. Persistent trade deficits have, over time, eroded its industrial base. Factories and jobs have gone offshore. Foreign nations have used their profits to invest in US capital markets and its debt. At the same time, financial markets – aka Wall Street – have grown and grown. Part of this process was the financialisation of America.

The Trump administration gets this in a way its predecessors did not. Vance has actually called the dollar’s reserve status a “tax” on American producers. What’s more, as this process has continued, more and more the credibility of the dollar itself is being cast into doubt. This tension forces the US to choose between its own domestic economic needs and the stability of the international monetary system. This is Triffin’s Dilemma. Trump wants to revitalise America’s “rust belt”. But there is more to it than that.

The Covid pandemic pulled back the curtains and revealed the extent to which the US has been operating with its trousers down: an excessive dependence on China and its supply chains for too many strategically essential products, especially those related to health, technology and the military. Then, during the Ukraine conflict, Nato found itself unable to match Russian munitions production. The US, in short, is struggling to produce critical goods. It’s why Trump keeps harping on about rare-earth metals. It is vulnerable.

Moving away from dollar towards gold and bitcoin

The answer is to engineer a “managed decline” of the dollar and reduce its role as a global reserve asset. This was already happening organically. China, for example, has been reducing its holdings of US Treasuries for 10 years now – quite gradually – although its US dollar holdings remain above $3 trillion. Meanwhile, China – and many other countries along the Silk Road besides – have been increasing their gold holdings, and quite dramatically. (In my view China has at least four times as much gold as it says it does. You can read more on this in my book, The Secret History of Gold: Myth, Money, Politics & Power.) The process is known as dedollarisation. Just a few months ago, gold overtook the euro to become the second most-held asset by central banks; the dollar itself fell beneath 50% for the first time this century. In fact, gold has just overtaken US Treasuries as a percentage of central-bank holdings worldwide.

We are not seeing a move towards any other national currency as global reserve. There is not one that could take up the role, despite what the bureaucrats in Brussels might try to tell you about the euro. The move is towards the neutral but universal asset that is gold. That suits all the main players. Gold is neutral and both the US (assuming it has all the 261 million ounces of gold that it says it does) and China have lots of it. (US gold has not been audited in over 60 years, hence the doubts.) Indeed, a gold revaluation would be a “win-win” for both China and the US. A higher gold price would strengthen US fiscal flexibility while boosting Chinese consumers’ wealth, encouraging domestic consumption and reducing trade imbalances. (China has been encouraging its citizens to buy gold since 2007.)

There is the potential to leverage the US’s 261 million ounces (8,133 tonnes) of gold reserves, currently marked to market at just $42/oz. There are two ways this might be done. Economist Judy Shelton has proposed issuing Treasuries that are in part backed by gold to offset the inflation/debasement risk to make them more attractive to buyers. The other possibility (which has gone from, as Bessent put it, “we are not doing this” to “we are not doing this yet”) is to revalue the gold from $42 to the current price of $3,400/oz, which would create more than $850 billion of reserves without having to incur any extra debt. That would help with the US’s current fiscal challenges: true interest expenses (including entitlements and veterans’ affairs) currently exceed 100% of Treasury receipts. In short, the US administration is leaning into a weaker dollar and the neutral reserve asset that is gold to rebalance trade and rebuild domestic industry, even at the cost of short-term economic pain.

A showdown between gold and bitcoin

Bitcoin, as the world’s best neutral digital currency, is going to have a role to play in all of this as well. The US is quite happy with that, too, as evidenced by its pro-Bitcoin rhetoric. At the national, corporate and individual levels the US has a lot of Bitcoin. The US itself has 198,000 coins, the most of any nation; Strategy (NYSE: MSTR) has 630,000 and many other companies besides also hold the asset; and 15%-20% of US citizens are thought to own some Bitcoin. Of the eventual 21 million supply, probably 15% has been lost and another 1.3 million are locked up by Satoshi Nakamoto and will likely never appear (he is almost certainly dead) – a hefty chunk one way or the other.

Which brings us to the recent Genius Act. This effectively nixed central bank digital currencies (CBDCs): the Federal Reserve Bank is now not allowed to issue them just as, irony of ironies, the EU’s Christine Lagarde was planning to phase them in. However, the act supported stablecoins (that is, coins backed by dollars) as a private-sector alternative. The more bitcoin grows, the more the stablecoin market will grow. Today, roughly half the entire US dollar stablecoin market, estimated at $250 billion, is invested in US Treasuries (maybe 2% of the overall Treasuries market). Tether is the world’s seventh-largest buyer. As the stablecoin market grows, so will its demand for Treasuries.

The market is small, but growing rapidly. Projections of its growth range from $500 billion in 2035 (JPMorgan’s guess) to $2 trillion (Standard Chartered) and $4 trillion (Bernstein). “If the stablecoin market meets these growth projections,” says the Kansas City Fed, “it could lead to a substantial redistribution of funds within the financial system.” In other words the stablecoin market is going to help the US fund its debt, just as other nations move away from Treasuries to gold and bitcoin. Gold might suit the US as a neutral currency, but bitcoin suits it better, especially if there are complications surrounding the Fort Knox gold, which it seems there are. Why no audit yet?

It’s likely a few years from now, there is going to be some sort of showdown between gold and bitcoin in the battle for primary reserve asset status. It’s unlikely to be both. Governments will favour gold, as they have lots of it. Tradition is on their side. Eternal gold has a track record that is unrivalled. But it is an analogue asset in a digital world. Bitcoin is much more practical. Which will win out? Practical digital or impractical analogue? This is a contest that is still a way off. For now all roads lead to gold and bitcoin as the world dedollarises. Own both is what I say.

Britain left behind on both gold and bitcoin

Needless to say the UK is absolutely clueless in all of this. The government sold two-thirds of its gold in 1999 and the Financial Conduct Authority regulator has made it near impossible for UK citizens to buy bitcoin. Word is that the chancellor is now planning to sell the country’s bitcoin holdings – though as these are confiscated this is legally problematic. The UK has recently overtaken China to become the largest holder of US Treasuries in the world after Japan, just as everybody else is dumping them. It is making no attempt to buy any gold either. We really have clueless clowns running the show.

Meanwhile, with the threat of AI and automation to America’s jobs – especially in jobs that involve driving, where millions work – there is the risk of mass unemployment coming quite quickly, and with it plentiful defaults on mortgages and loans. This could force the US to print money, driving inflation and providing yet another reason to own gold and bitcoin, which cannot be debased.

In short, the dollar will weaken significantly over the next three years. The pound is a basket case. National currencies are not stores of wealth. Gold and bitcoin are. Own both as the Trump administration addresses Triffin’s Dilemma through a managed dollar decline. They will use gold and potentially bitcoin to restore US industrial and military strength. This is the shift that is taking place.

Dominic Frisby writes the investment newsletter The Flying Frisby.

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Automatic Data Processing. (ADP) is a global technology company worth $123 billion and the world leader in human capital management. The software group boasts several desirable features for investors, offering them enduring competitive advantages, a share price up 119% in five years and a 2% yield from a dividend that has been increased every year for 50 years.

The group’s share buybacks have reduced the share count by an average of 1% per year over the past 10 years. ADP’s medium-term target is an annual total shareholder return of 13%-15%, with 2% of this figure from the dividend and 1% from the reduction in the share count.

For more than 75 years ADP has been helping small, medium-sized and large businesses by providing efficient services such as payroll and tax administration; time and attendance management; benefits management (retirement plans, health insurance); HR outsourcing (HRO); and complete human capital management (HCM).

The last includes processes ranging from recruitment and training to performance management. All the group’s services are now cloud-based.

ADP has 1.1 million payroll clients from a wide range of business sectors and pays more than 42 million employees across 140 countries.

In the US, its software consistently serves one-sixth of all employees. US non-farm employment has been increasing month by month in 2025, with payrolls up by 1.06 million between January to July, so ADP’s largest market is still growing.

For every one of the past 18 years, ADP has been listed in Fortune magazine’s ranking of the world’s 1,000 most-admired companies and was placed within the top quartile in 2024. Over the past 10 years, ADP’s revenue has increased by 88% and it has returned $30 billion to shareholders.

How Automatic Data Processing is fending off rivals

ADP’s enduring competitive advantage over rivals – its “moat” – is based on switching costs, intangible assets and scale. For a customer to switch to another company would be an expensive hassle because of the potential disruption of payrolls and possible loss of data. This is reflected in ADP’s 92% client retention.

Intangible assets include ADP’s strong and trusted reputation in payroll, its record of maintaining the highest levels of data security and privacy, and its deep understanding of the many regulations surrounding compliance and taxes around the world.

Scale benefits derive from ADP being the largest payroll provider in the US and the leader in mid-market HCM. ADP’s 2025 revenue was $20.6 billion, only 11.8% of the total potential market of $175 billion. The market is expected to grow at 5%-6% per year from 2025 onwards, with ADP’s medium-term strategy aiming for 7%-8% annual sales growth.

Growth will be a mixture of organic expansion and acquisitions. Organic growth is driven by this year’s $1 billion investment in research and development, digital transformation and artificial intelligence. Acquisitions are chosen to add strategic value. ADP has two business segments: Employer Services (ES) and Professional Employer Organisation services (PEO). ES’s revenue is twice PEO’s. ES provides human capital management and à la carte human resources outsourcing, whereas in PEO, ADP acts as a co-employer, with its smaller business customers providing a comprehensive HRO solution.

This has advantages, since ADP can combine several firms’ needs to negotiate keener prices on benefits and healthcare for its customers. ADP also has a third source of revenue – the interest on customers’ cash balances.

Growth should come from rising employment, cross-selling to increase revenue per customer, gains in market share, increasing interest from higher customer cash balances, and bolt-on acquisitions.

Automatic Data Processing: steady growth and rising income

ADP’s results for the year to 30 June 2025 showed revenue up 7% to $20.6 billion, adjusted earnings before interest and tax (Ebit) up 9% to $5.3 billion and adjusted diluted earnings per share (EPS) up 9% to $10.01.

The balance sheet showed long-term debt of $3.97 billion, with 84% of it matched by cash of $3.35 billion. Funds held for clients came to $30.9 billion, on which ADP earned interest of $1.2 billion (up 16% from the year before). The Employer Services (ES) division recorded revenues of $13.88 billion with a margin of 36.1%, while the Professional Employer Organisation (PEO) services division had revenues of $6.69 billion, with a margin of 14.2%.

ADP is using generative AI in supporting service associates, driving implementation efficiencies and in ADP Assist, launched in 2024. This is an AI-powered cross-platform solution to provide next-generation payroll and HCM solutions. In 2025, ADP launched Lyric, which is its new global HCM platform. The company’s guidance for full year 2026 comprises revenue growth of 5%-6%, an increase of 50-70 basis points in the adjusted operating margin and diluted EPS growth of 8%-10%.

ADP’s (Nasdaq: ADP) recent share price of $305 implies a forward price/earnings (p/e) ratio of 27.9 with a forward dividend yield of 2%. Analysts have pencilled in an EPS estimate of $13.05 for 2028, giving a p/e of 23.4.

ADP’s shares have gained 294% over 10 years, 119% over five years and 16% over one. ADP’s strong position in its sector, wide moat, high customer retention and continuous development of its products enable it to generate steady, profitable growth and a reliable dividend (raised every year for the last 50), making it a sound long-term investment.

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The Global Smaller Companies Trust seeks to offer investors exposure to small businesses both in the developed markets and faster-growing emerging markets. The trust takes a long-term, conservative approach to investing in good-quality, growing businesses when they become available at a significant discount to intrinsic value.

This disciplined investment process focuses on capital preservation and long-term value creation rather than chasing short-term market trends. We have found exciting opportunities in companies likely to benefit from increased spending on construction, both in the public and private sectors.

Three small companies to invest in

Martin Marietta Materials (NYSE: MLM) is a US-based producer of construction materials, such as aggregates, cement and ready-mix concrete. As the business sells products that have a low cost-to-weight ratio, it effectively operates a series of local monopolies. Materials from the company’s quarries are rarely transported more than 50 miles owing to high transportation costs. The business has a history of raising prices for customers, even in difficult times.

The company’s infrastructure division is likely to see significant demand from the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) that was passed in 2021. Spending on manufacturing and data-centre facilities and a recovery in construction of single-family homes are also longer-term drivers of organic revenue and profit growth for Martin Marietta. The company benefits from a strong balance sheet and prudent capital allocation, which provides resilience in more challenging market conditions.

Breedon Group (LSE: BREE) in the UK is a similar business. It has exposure to Britain and Ireland and recently entered the US through an acquisition. Construction activity in the UK and Ireland has not yet recovered to levels last seen in the early 2000s, and therein lies the opportunity. From a supply perspective, permitting for new assets is very challenging and this keeps industry capacity tight, reinforcing the company’s ability to raise prices.

Management has a history of creating shareholder value from acquisitions, through implementing the industry’s best practices at the operations of acquired businesses. The company is likely to make further purchases of smaller competitors. There is ample scope for further purchases, especially in the US. Share ownership by insiders is high, aligning management with shareholders.

Canada’s WSP Global (Toronto: WSP) offers engineering services in the areas of transportation, infrastructure, environment, property and power. The company has grown its market share organically by offering a full suite of services to its customers, making it a “one-stop shop”.

WSP’s global footprint and strong relationships with clients also help it to secure repeat business and large-scale contracts, adding to the predictability of its revenue streams. The business has natural drivers behind it in the form of an aged infrastructure base that needs updating, urbanisation, climate change and water scarcity. It supplements this growth through opportunistic acquisitions that bring additional capabilities to the business.

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There is an interesting change taking place in global equity markets. Investors are shifting their focus from US equities towards global stocks. Emerging markets are leading the charge, but demand for other regions is growing too. The trend is partly a result of valuation. Last year, the valuation premium of US versus international equities reached more than “three standard deviations over the long-term average since 1970”, says Steve Nguyen, fundamental portfolio manager at US investment management group Causeway Capital.

“Even with the underperformance of US vs. international this year, the US valuation premium is still around the two standard-deviation level.” After 17 years of lacklustre performance, European equities, as measured by the MSCI Europe index, are extremely discounted relative to their US counterparts (using the MSCI USA index as a benchmark). They are on a two-year forward price/earnings (p/e) ratio of 13 (MSCI Europe) compared with 21 for the US index.

Within emerging markets, the gap is even wider. Since the beginning of 2021, they’ve underperformed developed market equities by 55%, says JPMorgan. Go back to 2010, and the gap widens to 200%. Much of this is due to China’s performance, or rather lack of it. However, JPMorgan has observed a broadening participation in Chinese equities beyond the country’s world-leading tech sector. There are still plenty of clouds hanging over China’s economy, but policymakers are starting to shift away from regulation towards stimulating the domestic economy.

As a whole, according to JPMorgan, emerging markets are trading at one standard deviation below the 20-year average, relative to developed markets. There has been only one other occasion when they have been this cheap: after 2000, when Asian financial markets were still recovering from the double whammy of the 1997 Asian financial crisis and the dotcom bust. On a price-to-book basis, emerging markets are trading one standard deviation below the 30-year average at 0.5 of book value, the lowest level since 2000 (in 1997-1998 the ratio fell to 0.3).

Emerging markets are both cheap and under-owned, according to analysts. That implies scope for a recovery in both sentiment and valuation. JPMorgan’s team likes India, Korea, Brazil, the Philippines, the UAE and Greece. The latter is an interesting play. The bank notes that investors can book a 10% shareholder yield from the country’s formerly distressed banks, while the economy is also set to grow by 2% this year, with tourism offsetting any tariff hit.

Finding value in global equity markets

The valuation story is highly appealing in international markets. Martin Connaghan, co-manager of Murray International Trust (LSE: MYI), notes that there is “compelling valuation support in Europe and emerging markets, particularly in Latin America and Asia”. He adds: “Investors can still access many of the same structural growth themes found in the US, but at significantly lower valuations.”

While some countries may now look as if they’re heading for turbulence as a result of Donald Trump’s trade war, the reality is more nuanced, says Connaghan. “[Consider] the nature of the business. For example, while India may face high tariffs on physical goods, IT services firms such as Infosys or Tata are less directly affected. Their offerings, such as software, cloud and consulting, aren’t subject to the same tariff structures.”

Small caps present another opportunity for investors. Over the past five years, small caps have faced the same macroeconomic headwinds as large caps, but have still delivered fairly robust returns. The MSCI International Small Cap index has outperformed the MSCI International index (both ex-US) by 250 basis points annually.

“Smaller companies tend to be more domestically focused, which can insulate them from some of the cross-border complexities,” says Connaghan. And while international small caps have traded at a premium to international mid and large caps over the past 20 years, the current valuation is at a slight discount, says Nguyen.

Meanwhile, US management teams used to be far ahead of their international counterparts when it came to deploying buybacks. But recently there’s been an increase in buybacks in regions such as Japan, Europe and the UK. As a result, total shareholder return yields are now often “significantly higher outside of the US [while] the UK total yield is now more than double that of the US,” he adds.

An example is Italian financial services provider Intesa Sanpaolo. Recently added to Murray’s portfolio, Intesa is the number-one domestic bank in Italy. It has a common equity Tier 1 capital ratio of 14%, a cost-to-income ratio of below 40% and a dividend yield of 7%. In addition to Murray International, some of the best trusts to play global value are the Scottish American Investment Company (LSE: SAIN), which has an 86% allocation to global equities with the remaining allocation to infrastructure, bonds and real estate. STS Global Income and Growth (LSE: STS) and JPMorgan Global Growth and Income (LSE: JGGI) all offer dividend yields of between 3% and 4%.

In the global small-cap sector, region-specific trusts have produced the best returns over the past decade. Options include the European Smaller Companies Trust (LSE: ESCT), which has outperformed its sector by 41% over the past five years, or the JPMorgan US Smaller Companies Investment Trust (LSE: JUSC), which has outperformed the small-cap benchmark Russell 2000 index by 0.5% per annum over the past decade. For a play on Japan, consider the Nippon Active Value Fund (LSE: NAVF).

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Two companies – Nvidia and Microsoft – each are worth more than $4 trillion. Together, that’s more than India’s and Japan’s combined annual output. Price is what you pay, as Warren Buffett put it. Value is what you get. Our question for today: how much value will investors get from the Magnificent Seven?

Our Law of Conservation of Value tells us that prices cannot stray too far or too long from value. And value depends on output. Investors ought to be able to look to a future stream of income and from it earn their money back, and more. Even in the dotcom bubble in 1999, the top firms were not as valuable or as concentrated as they are today. Nvidia, Microsoft, Alphabet, Apple, Meta, Tesla and Amazon – together, these firms make up a third of total US stock market value, an amount roughly equal to China’s GDP.

Part of the appeal of these stocks is that they are widely believed to be taking advantage of AI technology. In the case of Nvidia, of course, that is the central appeal. But the others are investing heavily in AI too. In 2024 and 2025, Meta, Amazon, Microsoft, Google and Tesla will put more than half a trillion into AI. The revenue from these investments is expected to be around $35 billion. Amazon, for example, has invested more than $100 billion, which is thought to generate an extra $5 billion in revenue.

We don’t know how reliable or meaningful these figures are. What we do know is that they aren’t very impressive. As in the dotcom boom of the late 1990s, AI is not paying off. Huge investments are being made in the hope of creating AI-based wealth. But so far, the output doesn’t measure up.

You can go to ChatGPT, for example, and pay for the service. Many people use it occasionally – including us. But few pay for it – also including us. This would be fine, except that so much investment has gone into AI development that anything less than spectacular results will look like failure. One estimate, from Goldman Sachs, showed that the Magnificent Seven big tech stocks would have to produce $600 billion in extra annual revenue to make sense of their investment.

How will the AI boom end?

The appeal of the dotcom era was the idea that more information would lead to higher GDP growth rates with less need for capital investment.

Costly trial-and-error expansion would be replaced by less costly, more precise, knowledge-driven growth, or so it was believed. It didn’t work out that way. Productivity and growth rates generally softened throughout the 21st century. Capital investment went down. The internet/information revolution did not compensate for the decline; it seems to have made it worse. In the last half century, the rise in labour productivity in developed economies has declined from about 2% annually in the 1990s to 0.8% in the last decade, says the OECD think tank.

Will that change with AI? Probably not. The defining curse of the information revolution was too much information. It piled up. It got distorted and misinterpreted. It took time and money to store and sort. Much of it was false or useless. Now cometh AI, adding to the problem. Which leaves, at least for now, AI and the Magnificent Seven in an old-fashioned bubble. Stock prices are far higher than actual sales and profits can account for. So one way or another price and value will have to come back together. Some breakthrough might lead to a big burst of gains and growth. More likely is that stock prices will fall.

For more from Bill, see bonnerprivateresearch.com

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Of all the things that Donald Trump could claim are “rigged” against him, the number of jobs being added in the US economy is one of the oddest. Yes, there are real problems with statistics in many countries, and the situation has got worse since the pandemic. Firing the head of the statistics agency, as Trump did last week, is unlikely to fix that, especially if the replacement is picked for loyalty to him. However, the 258,000 cut to the estimated jobs added in May and June is completely in line with what you’d expect once in a while.

Data like these are prone to big revisions, sometimes long after they are first reported. One difficulty in trying to spot turning points in the economy using trends from past data is that the revised numbers we have now can sometimes be quite different from those reported at the time. Much of the information that statistics agencies collect is important in trying to understand long-term trends. But they are not reliable real-time signals. Investors, like Trump, could afford to take each release a little less seriously.

Earnings estimates are transparently biased

In fact, the prize for the most manipulated statistic in markets surely goes not to a government department, but to the private sector. Earnings estimates – and the ability of companies to beat them – are transparently a rigged game, especially in the US. If analysts’ estimates were an unbiased forecast of earnings, you’d expect companies to beat them 50% of the time and miss 50% of them. This doesn’t happen – on average, companies beat estimates significantly more often.

The reason is that company management – most blatantly in the US – guide analysts to lower forecasts as the reporting date approaches. They can then report earnings that beat the forecasts, and the positive surprise buoys the share price. However, if you compare reported net income for each quarter to forecasts made further in advance (three months before the quarter), “these ‘surprises’ are somewhat less impressive or not there at all”, says Andrew Lapthorne of Société Générale – see chart above.

Of course, earnings growth matters. Europe or emerging markets look better long-term value than America – but not if S&P 500 earnings keep growing much faster than the rest of the world. If the US continues to excel (which the chart suggests is increasingly a bet on the Magnificent Seven), the S&P 500 might yet come out ahead. But that has little to do with whether companies can beat short-term forecasts that they’ve carefully talked down.

So when the headlines say – as they doing right now – that more than 80% of S&P 500 companies are beating estimates, it is wise to be a bit sceptical. Does this mean that the corporate sector and the US economy is doing even better than expected; or does it suggest that the upheaval as Trump brought in his tariffs in April proved an excellent opportunity to guide down earnings aggressively and ensure a solid surprise?

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Trump’s EU deal will help blue-collar workers.” So believes Nicole Russell, a columnist for USA Today, “Critics can hate Trump’s personality all they want,” she says, “but the president’s ability to forge trade deals that favour American workers shouldn’t be discounted.” The gist of Russell’s argument is that the deal includes requirements for Europe to buy energy and military equipment from the US. This kind of stuff is made by people wearing hard hats or wielding power tools – that is, by “blue collar” workers.

Russell must not have much free time. If she had, she might have thought this through a bit further. In the first place, why should US government policy favour one group of workers (blue collar) over another group (white collar)? In the second place, the tariffic negotiations also favour very big businesses – oil and defence. How is that a plus for the guys who mostly work for small businesses?

In the third place, the same policies that will supposedly favour US industry output with a 15% tariff on imports also call for taxes of 50% on steel and aluminium, which must be paid by US carmakers and ultimately by car buyers. What good does that do the guy who needs wheels to get to work?

In the fourth place, who does she think pays for the tariffs? Tariffs are essentially a tax, paid by American importers – and then passed along to US consumers. White collar, blue collar or no collar at all – they’re all going to pay. Who else would? Dogs don’t pay tariffs. Inanimate objects don’t. In the end, all government revenues must come from the people.

Has Trump "achieved the remarkable"?

None of it makes sense. The US is running a $2 trillion deficit and heading for a financial crisis. But the trade deals are seen as a political “win” for Trump.

Trump has, says The Wall Street Journal, “achieved the remarkable: raising tariffs by more than the notorious Smoot-Hawley Tariff Act of 1930, while – it appears – avoiding the destructive trade war that followed”. Including the deal struck with the EU, the US will impose an effective tariff rate of about 15% on its trading partners, by far the highest since the 1930s, according to JPMorgan Chase.

But will the deals stick? Trump’s big trade deal with Japan is already falling apart, says The New Republic. A report from the Financial Times shows that US and Japanese officials aren’t seeing eye-to-eye on what exactly was agreed. Mireya Solís of the Brookings Institution told the FT “both sides made promises we can’t be sure will be kept” and “there are no guarantees on what the actual level of investments from Japan will be”. It’s not exactly a done deal with Europe either. Fred Hutchison, CEO of LNG export group LNG Allies, told Energy Intel that both sides can do a lot to encourage additional commercial deals in the LNG sector, but “neither government has any control over what happens commercially”.

Trump got his deals thanks to leverage over other countries’ deep economic and security ties to the US, says the WSJ. But in the coming years, “that leverage will wane as those countries cultivate markets elsewhere and build up their own militaries. The resulting international system will be less dependent on the US – and less stable.”

The markets are less stable too. Already teetering at the tippy-top of their trading range, stocks have become even more overvalued. More importantly, Trump has raised the cost of trading with the US. He must also have increased the desire not to trade with it at all.

For more from Bill, see bonnerprivateresearch.com

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The US has been undergoing a quiet energy revolution. The amount of energy produced by solar, wind and geothermal sources has more than tripled over the last decade. Solar energy has been one of the big winners.

Total installed capacity has grown eightfold, while solar power’s share of new energy capacity has expanded almost continuously from a minuscule 4% in 2010 to 66% in 2024, a figure that rises to 84% when you include storage. While Trump’s return to the White House has cast doubt on the subsector’s progress, even he may not be able to stop its rise. That is good news for firms like First Solar (Nasdaq: FSLR).

For most of its history, First Solar has focused on making and installing solar panels; it is still the seventh-largest manufacturer of photovoltaic (solar) power cells in the world. However, in the past few years, it has shifted its emphasis from panels for retail customers to utilities and now makes much of its money from building and maintaining solar power plants.

This shift has proved a shrewd move, as power companies have been eager to invest in solar energy in order to secure a range of tax credits and mandates from both the US government and individual states, notably the Inflation Reduction Act of 2022.

Silver linings for First Solar

Even though Donald Trump’s new bill curtails many of Joe Biden’s incentives for solar power, there are several silver linings for First Solar. Firstly, the tax credits for utilities will last longer than those for residential panels, while Trump’s changes won’t affect state-level mandates.

Most importantly, Trump’s tariff policies mean that the solar panels sold by Chinese rivals, who currently dominate the market, accounting for seven out of ten of the world’s largest producers, are now much more expensive. While the tariffs have also increased the price of many components that First Solar imports, the net impact of the tariffs is so positive for First Solar that even when you take the subsidy cuts into account, the group is in a better position than it was before Trump arrived in office, according to management.

First Solar has made excellent progress over the past few years, with sales rising from $3.06 billion in 2019 to $4.21 billion five years later – an increase of 40%. Sales are expected to grow even faster in future, increasing by around 50% in the next two years. Normalised earnings per share have jumped more than tenfold between 2019 and 2024, while operating margins have swelled, and the company now boasts a double-digit return on capital employed. Despite this, First Solar is still valued at only eight times 2026 earnings.

With First Solar recently upgrading its profit forecasts, the stock has been on a tear, beating the wider market over the last six months. It is also trading above its 50-day and 200-day moving averages. I therefore suggest that you go long at the current price of $184 at £11 per $1. In that case I recommend putting the stop-loss at $100, which gives you a total downside risk of £924.

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There are two obvious points to make about emerging markets at a time like this. One is that the idea of emerging markets as a single type of investment feels nonsensical and has done for a long time. The emerging-market universe covers a huge range of economies that have far less in common than the developed-market universe, which is already diverse enough. The other is that – regardless of the above argument – one rule still holds: when the US dollar goes down, emerging markets are much more likely to go up.

We have seen the same pattern playing out again this year. The MSCI USA is up by about 7% since the beginning of January, while the MSCI Emerging Markets is up by almost 16% in US dollar terms. Currency moves play a part here, but they are not the whole story: the index is up by almost 13% in local currency terms. This does not mean that every emerging market is doing well. India is notably weak. So is most of Southeast Asia. The mainland China A share market is unimpressive. Still, Hong Kong-listed shares, Korea, Eastern Europe, most of Latin America and the Middle East (excluding Saudi Arabia) have all been fair to outstanding.

Will emerging markets outperform others?

The natural explanation for why a weaker dollar and stronger emerging markets go together is down to capital flows. The dollar is weaker because money is flowing out of US assets (or at least no longer flowing into them) and instead going elsewhere. That money is not only heading into emerging markets, but economies that do not have deep pools of domestic institutional investors are very sensitive to foreign flows and so small shifts can make quite a difference.

The question then is whether this short-term rally can turn into a longer-term bull market. Certainly, the MSCI Emerging Markets looks cheap on a forward price/earnings ratio of about 13. The differential between this and the USA (on a forward p/e of around 23) is far wider than it was a decade ago. The caveat here is that emerging markets looked even cheaper back then (when the forward p/e was about 11). Yet subsequent returns were disappointing, which was in part because earnings growth was weak, though emerging economies grew faster (on average) than developed economies.

This will need to change for the rally to run – and there are signs that it may. Earnings per share for the MSCI Emerging Markets rose 10% last year and JP Morgan forecasts are for a further acceleration to 17% this year (although in this environment, forecasts should be treated as even more uncertain than usual). If so, this should turn into a virtuous circle: better results from emerging markets encourage more investment, more spending and lead to more growth. Note too that even though emerging markets have had a strong 2025 so far, they have actually lagged behind European markets. That feels natural at this stage, since pessimism about Europe has been extreme. However, if the rotation away from the US continues, one would expect them to ultimately outperform.

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What’s the beef between Jerome Powell and Donald Trump?

US president Donald Trump wants a looser monetary policy – lower interest rates – to get the economy growing and mitigate the impact of the ballooning US federal debt. Jerome Powell, the chairman of the Federal Reserve, the US central bank, sees his job as to resist that political pressure and is determined to carry on targeting inflation as the best way of ensuring long-term economic stability and growth. It’s an age-old (or at least decades-old) story of tension between elected leaders and “independent” central bankers. But in the case of Trump and Powell, there’s genuine animus and the stakes are exceptionally high. Trump himself appointed Powell (a Republican ex-investment banker) to the job as Federal Reserve chairman in his first term in 2018. But Trump quickly regretted his decision due to Powell’s refusal to bow to political pressure. Within months, the president was publicly attacking Powell as “crazy” for continuing to gradually raise interest rates and unwind America’s quantitative easing.

Why not sack Jerome Powell?

A president can’t sack a Fed chair over differences on monetary policy. He can only sack them “for cause” – meaning malfeasance of some kind. Powell’s term as the Fed governor (though not as a board member, should he choose to stay on) ends in May next year, at which point Trump will no doubt try to find someone more malleable. In the meantime, Trump’s undermining of Powell has become toxic. The Fed has kept borrowing costs on hold at between 4.25% and 4.5% this year, even as other central banks have cut. That’s partly, by Powell’s own account, due to April’s “liberation day” tariffs and their upward impact on US inflation forecasts. Were it not for that fresh negative factor, the Fed “would probably have cut rates [again] by now”, said Powell last month. In response, Trump has become increasingly abusive – attacking Powell as a “numbskull”and “complete moron”.

Why is Trump so angry?

Because the political stakes are unusually high, the US federal debt is unusually high and Trump is an unusual president. “It’s pretty universal having a president who wants lower rates,” says Don Kohn, a former Fed vice-chair. “What’s unprecedented is [Trump] doesn’t want lower rates to goose the economy, [for him] it’s about lowering the cost of the debt. That’s worrisome because keying monetary policy to relieving budget pressures is a sure track towards higher inflation.” Last month, Trump claimed Powell’s reluctance to cut rates – “at least three points too high”, says Trump – was “costing the US $360 billion a percentage point in refinancing costs”. That’s a trillion dollars worth of anger, which has expressed itself in mounting public frustration, including presidential musings on whether to fire Powell, and a tense on-camera spat over the cost of Fed renovations – as Trump apparently hunts for a just “cause” to replace the governor.

Why does all this matter?

Because it has undermined market confidence in the independence of the Fed and the stability of US policymaking – sending the dollar sharply lower this year and making a bond-market crisis more likely, as investors (fearing their loans would be repaid in a depreciated currency) demand higher interest rates. Last week, in a rare rebuke – albeit one that didn’t name the US, its biggest shareholder – the International Monetary Fund warned that undermining central-bank independence risked triggering a debt crisis and that independent monetary policy is “a cornerstone of macroeconomic, monetary and financial stability”. In the case of the US, that matters to all of us. An increase in US credit risk due to concerns regarding fiscal sustainability could make financial markets excessively volatile.

Are central banks independent?

Over the past half-century it’s become the norm for central banks to be at least nominally independent in rich-world economies. The idea is that politicians can’t be trusted to run monetary policy because they are too influenced by short-term political considerations. Giving the Bank of England independence was first mooted by Nigel Lawson in the 1980s and finally happened in 1997 under Gordon Brown. By contrast, Germany’s Bundesbank, the first central bank to gain full operational independence (in 1957), was central to the Federal Republic’s relative price stability and economic outperformance. In the US, the Fed has notionally been independent since 1951. But the institution remains haunted by the blunder of chairman Arthur Burns, who was pressured by president Richard Nixon to cut interest rates in the run-up to the 1972 election – ultimately leading to disastrous “stagflation”.

Independence is better, then?

It’s simply a means to deliver superior price stability and economic performance. There is historic evidence, dating from the 1980s onwards, that independent central banks tend to foster greater price stability. But the charge that independence removes democratic accountability became more potent in the wake of the 2007-2008 financial crisis, as banks became more powerful and pursued highly politicised and contentious strategies such as quantitative easing. There has also been much less consensus over the purpose of monetary policy in an era of low inflation and low growth. Why target inflation when the real issue is stagnation? Central banks also struggled to cope with the post-pandemic inflationary shock, further undermining faith in their technocratic omniscience.

So Trump is right?

As with many of his views, there’s a kernel of truth. But any attempt to curb the Federal Reserve’s independence – especially when it comes to rate-setting – would be very bad news for financial markets. As John Authers puts it on Bloomberg, “Independence may be the worst form of central banking – except for all the others.”

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We were probably wrong about tariffs. Yes, of course, they were always a bad idea and still are. Anything that interferes with our ability to freely trade with each other will make us poorer, with less choice and lower quality goods and services. After the Trump administration’s “reciprocal” tariff bomb blew up in its face, in April, we thought tariffs would quietly go away, like a man who just made a fool of himself at a party. That’s about what happened with Canada during Donald’s first term. His team squawked about “unfair” trade with Canada and tore up the North American Free Trade Agreement (Nafta). Then, after protracted negotiations, it ended up with something very close to Nafta, and trade went on much as before.

We thought the negotiations with other countries would go the same way. But no. Even before the 1 August hikes, tariffs are at a 70-year high. And going higher. The details change by the day, but it’s clear who will pay: American companies and consumers. Yale University researchers project that Trump’s tariff strategy will raise costs for US families by $2,400 this year.

Tariffs can be used in a variety of vain and foolish ways – to promote foreign-policy goals, to influence other countries’ internal politics, to raise drug cartels’ profits, to pay off big political donors, and generally to make a mess of the economy. They can also be used to enrich those who impose them. An investigation by ProPublica has revealed that federal officials across multiple agencies sold stocks before Trump’s tariff announcements caused major market declines.

Long-term impact of Trump's tariffs

Tariffs are a tax and taxes are supposed to be “fair”, which is to say, you’re not supposed to tax a Republican more than a Democrat or a plumber more than a carpenter. True, tax loopholes and credits have been used for decades to reward friends, punish enemies and drive the money where the feds want it to go. Want people to buy electric cars? Give them a tax subsidy. Want them to stop smoking? Impose a tax on cigarettes. But at least Congress – the people's parliament – has a say in who is taxed and how. Not so with tariffs. The president can tariff individual countries and give different rates to different nations. He can also target individual industries, regions and, like the bills of attainder that the US constitution tried to avoid, he can single out specific products and individual companies.

Washington has, for example, just imposed a 17% tariff on US imports of tomatoes, almost all of which come from Mexico. As Bloomberg notes, the move comes just days after Trump unveiled plans to impose a 30% tariff, beginning 1 August, on many Mexican products that don’t fall under the USMCA trade agreement he negotiated in his first term.

Neither Democrats nor Republicans will want to give up this kind of arbitrary power. So, tariffs may become a more-or-less permanent part of the US’s end-of-empire finances – a sneaky consumption tax, which gives the feds more money to spend, more opportunities for corruption, and another cudgel with which to beat anyone who stands in their way. Whatever fiscal benefit the feds get from higher tariff taxes – $300 billion is expected this year – is likely to be offset by lower GDP growth and lower tax receipts elsewhere. And over time, shackled with tariffs, the US economy will become less and less competitive.

For more from Bill, see bonnerprivateresearch.com

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Earlier this year, the co-founder of America’s most controversial intelligence-tech company, Palantir, published a book, The Technological Republic – a distillation of a lifetime’s philosophical musing and a call to arms. The “treatise”, written by Alex Karp – often billed in the company’s mythology as the liberal yin to co-founder Peter Thiel’s hard-right libertarian yang – urges Silicon Valley to abandon its frivolous pursuit of “trivial consumer products” and recommit capital and talent to a “national project” – nothing less than a battle for Western civilisation in the teeth of Chinese aggression. America needs “a new Manhattan Project… to retain exclusive control over the most sophisticated forms of AI for the battlefield” and head off this existential threat, he writes.

Karp, one of a “gang of five” who founded Palantir in 2003, “brims with American chauvinism”, says The New York Times. Safe to say, he does not believe in appeasement, observing that the whole point is to “scare the crap out of your adversaries”. Palantir’s contribution to this process is “the finding of hidden things” – its ability to sift through mountains of data to perceive “patterns of suspicious or aberrant behaviour”, to join the dots. In the wake of 9/11, the CIA bet on Palantir auguring where the next terrorist attacks would come from and was an early financial backer. The company is often credited with helping locate Osama bin Laden in 2011 so that Navy SEALS could kill him, but it’s unclear if this is true.

From the outset, Palantir – named after a powerful “seeing stone” in The Lord of the Rings – was designed to give government, and increasingly, private companies, “a bit of Tolkienian magic”, says The Wall Street Journal. Critics have a darker view of its role as a shadowy US government aide, and in the years up to its flotation on the stock market in 2020, “the opacity of Palantir’s financials only added to its reputation as a black box”.

Alex Karp's cult status

In recent years, Karp, who spent years under the radar himself, has emerged as an online celebrity. His “meme-able look” and “unvarnished remarks” have made him into a cult figure among retail investors who count themselves as “Palantirians”. Indeed, “he sees himself as Batman”, notes The New York Times. The company’s Manhattan office, featuring a statue and prints of the superhero, is called Gotham – ditto, Palantir’s core government product.

Born in New York in 1967, to a Jewish paediatrician and a black artist, Karp went on to study at Haverford College, a liberal arts establishment in Pennsylvania, then Stanford Law School, before heading to Germany for graduate school. In 2003, he teamed up with Thiel – a former Stanford Law classmate – to launch Palantir, using a program that Thiel’s former company, PayPal, had deployed to identify Russian money laundering. Of late, the company has been on a roll. In 2020, Karp was paid $1.1 billion in total compensation, “the highest of any chief executive at a publicly traded company”. But the advent of Trump has put rockets under the stock – up by 110% in the year to date.

Karp’s general strategy is to position himself as a guy that can “talk sense” to the left, says The Nation. Palantir’s “carefully maintained mystique provides the perfect backdrop” for him “to play the eccentric intellectual” – mixing references to “philosophy, art and science” with “incendiary statements”. Yet the vision conjured up in The Technological Republic is chilling. The book is “a road map for a world in which warfare provides the essential impetus for social cohesion – where citizenship means compliance, where technology means weapons… and where the republic itself is a garrison state, built to Palantir’s specification”.

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Matthew Partridge: In your new book, The Economic Consequences of Mr Trump: What the Trade War Means for the World, you posit that president Donald Trump’s threats over tariffs are real, rather than a bluff, and represent a major threat to both the US and world economies.

Philip Coggan: Yes. Many investors seem to be assuming that Trump will ultimately back down from his threats of swingeing tariffs; markets have recovered from the collapse that took place in April when they were first announced. However, while there is still a chance that this could be correct, this attitude seems complacent.

Ironically, the assumption that Trump is bluffing may end up increasing the risk of tariffs, both because it means that Trump won’t get the concessions that he’s looking for, and because he thinks that the muted market reaction means they aren’t that economically damaging.

Matthew Partridge: What are Trump’s aims, then?

Philip Coggan: In my book, I argue that trying to understand Trump is like trying to nail jelly to the wall. However, I do think that he genuinely doesn’t understand economics and thinks that America’s trade deficit is a sign that America is being “robbed” – the type of mercantilism that was debunked by Adam Smith 250 years ago. He also thinks that returning manufacturing jobs to the United States will help boost his public support.

Matthew Partridge: There has been a wide range of reaction to Trump’s tariffs, from China simply imposing their own tariffs in response to prime minister Keir Starmer agreeing to cut the UK’s import levies. Which road do you see the EU, Canada and Japan going down?

Philip Coggan: I think you can understand the UK and Chinese differences in terms of the strength of their respective negotiating positions. China is a big economy that produces things the US really wants, like the rare-earth materials, as well as cheap goods that help keep down prices.

As a result, China can cause serious pain for the US economy if it wants to. The UK, however, is not only a smaller economy, but depends on the US for its defence. This makes Britain’s negotiating position much weaker; hence the more conciliatory response.

The EU, while economically bigger than the UK, is in a similarly weak position. Firstly, the need to get all 27 countries to agree to any response makes it harder to impose any major across-the-board tariffs, especially when you have countries like Hungary, whose leaders don’t want to antagonise Trump. As with the UK, there is also the security angle. That explains why the EU folded and agreed to what looks like a one-sided deal.

The Japanese faced the problem that many of Trump’s demands didn’t make sense, or were based on things that don’t exist. Take the “bowling-ball test” (the myth that Japanese regulators require imported cars to be able to withstand the impact of a bowling ball dropped from a certain height). The Japanese agreed a deal to protect their carmakers. It is worth noting that importers of Japanese cars will face a 15% tariff but US car producers will have to pay 50% tariffs on raw materials like steel and aluminium.

Furthermore, while both the EU and Japan made vague promises to invest hundreds of billions in the US, there is no sign of legally binding texts, and such promises have been unfulfilled in the past. They may be hoping to wait out Trump’s term before the money becomes due.

Matthew Partridge: If investors are too complacent, what will it take to convince them to take Trump’s threats seriously?

Philip Coggan: One obvious trigger point is the deadline that Trump has imposed at the start of August for concessions from other countries. So, if that deadline passes and Trump decides to go through with the planned tariff hikes, then markets will see that we’re looking at something more than just a 10% tariff on all goods that are imported to the US. Another trigger point could be if he follows through on rumours that he will impose huge tariffs on imported drugs.

Who will suffer most from tariffs?

Matthew Partridge: Are the big losers from Trump’s tariffs likely to be large global firms or smaller domestic firms?

Philip Coggan: It certainly makes sense that big global multinationals will be much more negatively affected than those producing and sourcing inside the US. However, US firms that depend on imported raw materials will also feel some pain, as most larger companies have global supply chains, even if they consider themselves primarily domestic.

Nearly half of all US imports involve either raw materials or components. So, if you depend on imported steel, copper or aluminium, your costs are going to go up quite a lot, which will hurt your profits.

Matthew Partridge: Outside the US, which countries are set to suffer?

Philip Coggan: Well, it depends on how all the tariffs settle down, but I think the biggest losers are going to be those in emerging markets, which have been suppliers to the US in sectors like apparel. You can expect countries like Vietnam, Cambodia and Laos to struggle to find alternative markets for their goods.

The EU is another big loser, and could see at least 1% shaved off its GDP growth, which given the bloc’s mediocre economic growth performance could be quite serious. After all, even with relatively low tariffs, the UK economy is not really growing.

Matthew Partridge: Could Trump’s tariffs cause a global recession?

Philip Coggan: I don’t see the main threat as being some sort of immediate global recession, because these things take time to feed through. But we are already seeing companies cutting, or even completely pausing, their international investment, because they don’t know what the final tariff rate will be.

However, even if there isn’t a crash, tariffs and protectionism make the global economy less efficient at a time when it is already growing rather slowly. It’s important to realise that a lot of the growth during the last 15 years came from China, which is finally slowing thanks to its ageing population. So rather than cause some big implosion, Trump’s tariffs could just speed up the process of global economic entropy.

Will tariffs be a lasting legacy?

Matthew Partridge: Assuming that Trump leaves office in January 2029 (or earlier), do you think his protectionist legacy will endure, or is he just an aberration?

Philip Coggan: Trump’s populism is certainly a very long way away from the free-trade Republicanism of George H.W. Bush, which now seems to be extinct. What’s more, the Democrats are pretty protectionist themselves. During his four years in office, Biden kept most of the Trump tariffs and imposed export restrictions on chips to China (restrictions that Trump has ironically loosened).

So, while you should see a bit more “normality” under a Democratic administration – as they are unlikely to impose blanket tariffs that cover America’s traditional allies or even remote islands populated by penguins in the Antarctic – they may not be as different as you might think.

Matthew Partridge: Are Trump’s trade policies the only thing that could damage the US economy?

Philip Coggan: The tax cuts and spending contained in his so-called Big Beautiful Bill certainly undermines the US fiscal position, which will inevitably lead to both higher interest rates and a weaker dollar.

In the very long run, it could also imperil the greenback’s position as a global reserve currency (the currency in which most global trade takes place), though this may take time, as there isn’t an obvious alternative at present.

More generally, his economic policies, such as cutting federal research budgets and launching an attack on universities, are destroying everything that is great about the US. China is catching up quickly with the US on research spending, and Chinese academics are going home rather than staying in America.

Moreover, a record number of American academics are looking to work abroad.

And these are not things that have a one- or two-quarter impact on economic growth, but could seriously reduce it five or so years down the line. Note that the development of the new generation of weight-loss drugs, which are now generating tens of billions in sales, came from investigating the Gila monster (a type of lizard), which is exactly the sort of basic research that Trump is slashing.

Matthew Partridge: On a more optimistic note, if the US does remain protectionist, could other countries take up the mantle of promoting global free trade?

Philip Coggan: Well, I very much hope they do. The US represents less than 10%-15% of global trade (depending on how you measure it), so if you can keep the other 85%-90% going under WTO rules, then that would reduce the impact. The negotiations over the trade deal between the EU and Latin America’s Mercosur is a really positive sign.

However, since the past 80 years of trade liberalisation has been driven mainly by the US, the withdrawal of the US (and its soft power) from the world stage is very worrying. When the US retreated into isolationism after World War I, it took only 10 years for the global order to start to collapse.

The Economic Consequences of Mr Trump: What the Trade War Means for the World is published by Profile Books (£6.99).

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Following a trip in May to a US investment conference to meet with company bosses, James Harries, the manager of STS Global Trust, reported that, “as ever one cannot fail to be impressed by the sheer scale, dynamism and competitive zeal of US corporates and the wider economy. There was widespread angst relating to tariffs, the unpredictability of policymaking and the stress on the consumer, but this had yet to show up in end demand.” Perhaps most remarkably, “not one company mentioned the word ‘Trump’”. At the time, it seemed that business leaders, fund managers and pundits in the UK were talking about little else. The consensus that had prevailed at least since his inauguration, if not well before, that Trump was mad, bad and dangerous, is being slowly transformed into a more measured analysis.

Jonathan Sumption, a former senior judge on the UK’s Supreme Court, remains firmly in the critics’ camp. He has warned that Trump’s bullying tactics, intolerance of even mild dissent, readiness to use presidential prerogative to drive through his agenda and vocal threats to those who stand in his way bear all the marks of an aspiring dictator. The checks and balances of the US constitution, with its division of power between the executive, Congress and the Supreme Court, and between federal, state and local government, has been steadily undermined, says Sumption. The muted opposition to all his proposals must mean that opponents and sceptics have been cowered into submission – that Trump has captured the Republican Party and has made himself unaccountable. The approval of presidential appointments, including cabinet positions, is just a rubber-stamping exercise.

Donald Trump is not Adolf Hitler

This view is echoed by Filipe Campante and Ray Fisman, writing for Bloomberg. “The second Trump administration has undertaken a sweeping expansion of presidential power,” they write. “The White House is attempting to usurp some of Congress’s spending powers and to reclassify civil servants so as to make them easier for the president to fire. He deployed the National Guard on California over the governor’s objections under the auspices of responding to a rebellion.” Campante and Fisman argue that the power of the courts is being challenged, students detained and universities bullied into submission. “The system that is currently under threat has endured periods of remarkable stress but democracy survived and thrived by responding to these challenges. This track record led to an understandable and almost unshakable belief that American democracy was unassailable.”

Now, however, the two-party system has turned from being a barrier to extremism (as voters converge to the centre) into a trap, say Campante and Fisman. “If extremist or anti-democratic forces somehow manage to capture one of the two major parties, the system would switch from being a barrier to extremism into an accelerant. Helped by the rise in partisanship, which keeps voters loyal, Trump and his loyal proxies can credibly threaten every Republican elected official with the destruction of their political career.”

Niall Ferguson, the author and historian, takes a very different view. “People on this side of the Atlantic don’t remotely understand him,” he says. “He is not Mussolini, much less Hitler. It is enormously stupid to compare Berlin in the 1930s, when everyone was in uniform, militarism was rife and lawlessness everywhere, with America now. Trump is recognisably in the American tradition of populism, with tariff policy deeply rooted in the late-19th-century politics of president William McKinley.”

As for the idea that the US is teetering on the brink of authoritarianism, forget it: Trump’s use of executive orders is comparable with that of F.D. Roosevelt in 1933. Trump owes a large debt to Richard Nixon, who first took him seriously as a political figure. Nixon shocked the world in 1972 by meeting Mao Tse-tung, severing the dollar’s link to gold a month later, and by introducing a general 10% tariff.

Ferguson also compares Trump to Reagan in his restoration of military deterrence and the use of surgical strikes. “It reminds people of the superiority of the US military” and that “will have shocked Putin”. The bombing of Iran showed that Russian air defences are useless. German rearmament – precipitated by vice-president J.D. Vance telling Europe that if it doesn’t do something about its defence, Nato was over – is also a disaster for Putin. “Russian attacks on civilians are a sign of desperation as it can’t hit military targets. Putin has overplayed his hand and a war of attrition is unsustainable.”

These developments also make confronting the US a worse idea for China than it was just a few weeks ago, says Ferguson. A Taiwan crisis is still a strong probability, but Xi Jinping “is not a well man and doesn’t have long”. Trump’s successor may not be as amenable to a deal as Trump is, so “the stand-off will reach a culmination in the next three years”. Ferguson believes that China is more likely to blockade Taiwan than invade. After all, “when did the PLA last fight”? “Ukraine would be the last place in the world where I would want to get into a pub fight,” he says. “Taiwan would be my first choice.”

Trump’s tariff masterstroke

As for Trump’s widely derided tariffs, Torsten Slok, chief economist at Apollo Global Management, wonders if Trump hasn’t outsmarted the world with his tariff plan by keeping tariffs below his threatened rates to ease uncertainty while still producing $400 billion of annual revenue for US taxpayers. “This would seem like a victory to the world; trade partners will be happy with tariffs of only 10%.”

Dr Pippa Malmgren, a former US presidential adviser, gives Trump a mark of nine out of 10 for how well he’s doing. “His electoral base loves the changing of the power structure around tariffs, the fact that its succeeding in compelling other governments to negotiate not just on trade but on a variety of other issues.” It might seem as though his attempt to control the budget deficit and hence government indebtedness is failing, with Elon Musk disillusioned about the administration’s failure to slash public spending. Malmgren, however, says that “getting spending under control, will take many decades but the commencement of the process has gone incredibly well. This means addressing the issues of why money is being spent, what it is being spent on and whether it should be. His base is also very happy with his decisiveness on illegal immigration.” This has increased 50% year on year in the UK; attempted crossings of the US-Mexico border have dropped by more than 90%.

Trump’s critics are expecting (or is it hoping for?) a US debt crisis, particularly after the extension of the temporary tax cuts enacted in 2017. In Argentina, Javier Milei’s drastic cutting of public spending has turned an unsustainable deficit into a primary surplus (before finance costs) and is now being rewarded with an economic boom. That was never possible in the US. But it is far too soon to say that Trump has given up on cutting government expenditure; a 10-year US Treasury yield below 4.4% does not suggest that the bond vigilantes are particularly worried. As Ludovic Subran, chief economist and investment officer of Allianz, says, “it’s quite impressive to see how much the market is pricing in the pragmatism of President Trump. A lot of the uncertainty that was really peaking in April and May is now fading away.” You may not like Trump personally, but he is proving effective and markets are responding.

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When Donald Trump began unveiling his tariff plans in April, investors feared we were entering a sharp and sudden bear market. Stocks dropped sharply around the world, with the US down 10% in two days. Yet the plunge was short-lived: stocks rallied as abruptly as they had dropped. The US and other major global markets have gone on to new highs. So did investors get rattled too easily – or are they too sanguine now?

On the optimistic side, the deals that the US is striking with trading partners look less damaging than everybody feared in April. Yes, tariffs are unwelcome. They bring complexity and friction to global trade and add costs. Those costs will be borne to varying extents by the entire supply chain between foreign exporters and US consumers. Yet these deals still reduce the risks of a wider and more damaging trade war.

The pessimistic take is that America’s views on the rest of the world have changed. It is backing away from principles that it has championed for decades to become insular and mercantilist. Policymaking is more arbitrary and unpredictable. We can’t even be confident that these deals – which are still broad frameworks – will be honoured, let alone what might come in the next three-and-a-half years and beyond.

US stocks vs the world

So the rest of the world is reacting in a rational way. Countries are striking deals with the US to minimise immediate disruption, but over the longer term they will have to recognise that the world is changing. Trade patterns and alliances will shift. CEOs are also trying to flatter Trump by announcing large investments in the US to avoid being targeted – we are seeing plenty of this from pharma firms in an effort to ward off threats of high tariffs on imported drugs. Yet it remains to be seen how much will be puffing up investment that was already in the pipeline and how much actually materialises.

We will be looking at how all this could play out at Turmoil, Tariffs and Trump 2.0, our next annual MoneyWeek Wealth Summit on 7 November (tickets have just gone on sale at moneyweekwealthsummit.co.uk/2025). However, in stock market terms, there is one obvious idea for managing these risks.

US stocks have so far outstripped the rest of the world over the past 15 years that they now make up 60%-70% of the global market, depending on which index you track. This has been driven by superior earnings growth, but valuations have also diverged much more than many investors realise.

The MSCI USA trades on 23 times forecast earnings, while the MSCI Europe is on 14. Look back to mid 2016 – about the time the divergence accelerated – and the MSCI USA was on 17 times forward earnings, while the MSCI Europe was on 15 times. So striking a better balance between the US and the rest of the world than a typical global tracker fund doesn’t need to be a bet on whether Trump’s policies will ultimately hurt the US. Doing so is increasingly justified by the growing gulf in valuations.

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“Sire… worse than a crime, you have committed an error,” said Charles Maurice de Talleyrand-Périgord. A crime is whatever the feds say it is. Often not what you think it ought to be. But an error is different. It is a left turn when you should have turned right. It is forgetting your wife’s birthday. It is a budget deficit, when you should have been running a surplus.

In the Big, Bad, Budget Abomination, for example, there are two huge errors. The obvious one: they increased the deficit. They chose more spending, not less – even more money they don’t have on programmes they don’t need. And they are doing it on such a large scale – with $2 trillion deficits – it is sure to blow up the entire US financial system.

We all know you can’t spend more than you make for long. But some people delude themselves that we’ll “grow our way” out of the debt trap. As we’ve seen, in the light of federal policies, such growth is less and less likely. As Fortune points out, the US may see more than 500,000 people emigrate from the country as a result of Donald Trump’s aggressive deportation campaign. The hit to the US labour force is likely to shrink the country’s GDP.

Deficits will also gobble up the supply of capital. “As government spending increases, the less productive public sector absorbs more labour and resources, starving the more productive private sector of these critical inputs,” as Seeking Alpha points out. The predominant view is that, although the feds’ deficits are clearly a mistake, it will take many years for the harm to show up. So, the consequences, such as they are, will probably fall on our children and grandchildren, not on ourselves. And since none of us knows the future, why worry about something that may or may not actually happen sometime in the distant tomorrow?

Debt deniers and the Republican "spendfest"

Yet the iceberg is dead ahead and the danger looms closer. Inflation rose in June, for the second month in a row. Whether this marks the beginning of large price increases or not, we don’t know. But it might be a good idea to keep an eye on the lifeboats, just in case.

Other debt-crisis deniers look to Japan for comfort. Except for the fact that their economy is shrinking (along with their population), a Fuji of debt – the biggest pile in the world – hasn’t seemed to bother them. But wait. Even there, the error is becoming more apparent. The yield on ten-year Japanese government bonds has hit 1.595%, the highest since October 2008. The Japanese can do maths. At 250% of GDP, even a small increase in interest rates has a devastating effect on government finances. The government must borrow to cover the interest payments, which widens the deficit, increases the debt and raises the cost of interest.

Back in the US, the Republicans’ “spendfest” goes on and the errors multiply. Not only are they spending too much, they are claiming to spend too little. After all, if huge deficits don’t really matter, why try to save money on medical care for those who need it?“GOP lawmakers are warning that slashing spending on Medicaid and food assistance will cost the party seats in the mid-terms – threatening their razor-thin House majority – by kicking millions of Americans off safety-net programmes,” says The Hill. The poor lawmakers had to decide. Which error, which sin, which mistake to make. Being fair about it, they make them all.

For more from Bill, see bonnerprivateresearch.com

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Is China already ahead on tech?

It’s there or thereabouts. A technology index by researchers at Harvard, published last month, ranked 25 countries across five sectors: artificial intelligence (AI), semiconductors, biotechnology, space and quantum technology. It placed the US first in all categories, but with China breathing down its neck in second. By contrast, a recent study by the Australian Strategic Policy Institute found that China has already pushed ahead decisively in crucial areas. The think tank found that, back in 2003-2007, the US led China in 60 of 64 frontier technologies – such as AI and cryptography – while China led the US in just three. By 2019-2023, the position had reversed. China now leads in 57 of 64 key technologies, and the US leads in only seven.

Where does China excel?

The world’s largest and most innovative producers of electric vehicles (BYD), EV batteries (CATL), drones (DJI) and solar wafers (LONGi) are all Chinese start-ups, none more than 30 years old. Chinese firms are competing aggressively in other innovative sectors in which the US has long been dominant: aviation, telecoms, robotics, nuclear power and fusion research, quantum computing, biotech and pharma, and solar energy. For now, the US and its allies (including Taiwan) maintain a narrow lead in advanced microchips and AI, says Christopher Mims in The Wall Street Journal – but the gap is closing faster than ever. China’s domestic chipmaking network still lags, but the idea that it is far behind, or will remain so, “flies in the face of history”, says industry analyst Patrick Moorhead. It’s only a matter of time, he argues, before China will be in a position to source everything it needs in order to match or exceed the capabilities of firms such as Taiwan’s TSMC and the US’s Intel.

What about AI?

The “DeepSeek moment” in January, when the Chinese company unveiled a large language model (LLM) almost matching the capabilities of OpenAI’s ChatGPT, but for a fraction of the investment, confirmed that China is “snapping at the heels” of the US, says The Economist. It was a startling moment, but obscures the fact that China’s policymakers are making a different kind of strategic race, focusing on practical applications of AI in factories and for consumers. US firms focus on the model, but Chinese players emphasise practically applying AI, says Zhang Yaqin, a former boss of Baidu, now at Tsinghua University – the same pattern by which China stole a lead in e-commerce and e-payments. At the same time, China is lavishing state support on the entire AI tech sector, in chips and data centres and energy, says Kyle Chan of the RAND Corporation.

What is China doing right?

China has advantages that previous challengers to US hegemony do not. It has a huge domestic market, so it can incubate firms within its borders before they go global. Although it remains dependent on the US and other nations for many raw materials and specialised goods, it has a decades-long strategy of pursuing self-sufficiency in high-tech sectors. That means it’s producing an ever greater slice of all it needs. Education is another example of long-term commitment to strategy and execution, says Lee Jong-Wha on Project Syndicate. Superior higher education is a proven driver of success in the struggle for global economic, technological and geopolitical leadership. China has invested in building world-class universities such as Zhejiang University, modelled on Stanford, which has helped transform Hangzhou into a Chinese Silicon Valley.

The US, by contrast, is “actively undermining its elite institutions of higher education – not least by alienating foreign talent”. The current administration’s policies (suing colleges over ideological misdemeanours and discouraging foreign students) are spectacularly misconceived. Many of the world’s most valuable firms, including Google, Meta, Nvidia, and Tesla, were built by graduates of elite US universities, and many were not American. Over half of the US billion-dollar start-ups have at least one immigrant founder, and a quarter were launched by individuals who first arrived in the US as international students.

What should the US do?

Most fundamentally, say David Autor and Gordon Hanson in The New York Times, US policymakers need to stop looking in the rear-view mirror and start focusing on the road ahead. The US still frames its strategic competition with Beijing with reference to the first “China Shock” of 1999-2007, when China’s transition to a market economy helped erase nearly a quarter of all US manufacturing jobs. But that’s history, and the US now risks fighting the last war. What’s coming now is “China Shock 2.0”, and it will be far more profound and long-lasting. The original, manufacturing shock ebbed as China ran out of low-cost labour; “China Shock 2.0 will last for as long as China has the resources, patience and discipline to compete fiercely.”

How should the US respond?

The best response to that threat is for the US to act in unison with commercial allies such as the EU, Japan, Canada, the UK, Australia and South Korea, say Autor and Hanson. At the same time, Chinese firms should be encouraged to set up production facilities in the US and elsewhere. That sounds counter-intuitive, but it’s similar to the way China once encouraged Western companies to do the same in China as a way of speeding up technology transfer. Chinese policymakers refer to this as the “catfish effect”, whereby a strong foreign competitor spurs the weak domestic “sardines” to swim faster or else get eaten. In addition, the US should follow China in “aggressively promoting experimentation in new fields”, as happened in the US and Europe during World War II. Finally, the US needs to “choose the battles” it can win (semiconductors), or those it cannot afford to lose (rare earths) and make the long-term investments to reach the right outcome.

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There are not that many people still working in investment who can remember a time when Japanese government bond (JGB) yields did not trend inexorably down. They peaked in 1990, just after the bubble began bursting, and declined through most of the following 35 years.

For the entirety of my career, shorting JGBs has been known as the “widow-maker”. No matter how low yields went, they always found a way to fall further, wiping out anybody reckless enough to bet that the bottom had been reached.

This may be why the big upward moves in longer-dated JGBs over the past year have not drawn as much attention as you would expect. Anyone who has been conditioned to expect JGB yields to be low forever will instinctively doubt that it can last. This is a brief upheaval, and they will soon head right down again.

Yet, something fundamental seems to have shifted. The 30-year JGB currently yields 2.9%, comparable to the 30-year bund at 3.1%. It had ticked up to almost 3.2% before the Bank of Japan said it would reduce the pace at which it is stepping back from quantitative easing (QE), while the Ministry of Finance indicated it would issue less ultra-long-dated debt in future.

The implications of this are significant – not just for Japan but also for global markets, because low-yielding Japanese debt has been a key funding source for many global carry trades. Borrow at low rates in one currency, invest in higher-yielding assets in another, pick up the difference in returns and hope you can unwind the trade before something – eg, typically a massive currency move – leaves you with sudden losses.

Long-dated JGBs signal uncertainty everywhere

Still, the higher yields on long-dated JGBs don’t imply that Japanese monetary policy is going to normalise any time soon. Markets are pricing in a very drawn-out adjustment – while the 30-year JGB and the 30-year bund are now in line, five-year yields are still well over a percentage point apart (0.97% vs 2.18%). This long-term distortion in global markets may gradually unwind – which is likely to be bullish for the yen over the long term – but it’s not immediate, or so the market thinks. Whether this may be too sanguine is another matter: if inflation (3.5% in May) remains high, rates should go up faster.

Instead, what long-dated bonds are signalling in Japan and elsewhere is a huge amount of uncertainty. Take the US 30-year Treasury, which now yields 4.8%. This doesn’t seem to be due to fears of runaway inflation in particular, because the 30-year inflation-linked Treasury is yielding about 2.5% (ie, the rate of inflation needed for them to return the same is just 2.3%). Rather, it simply feels increasingly reckless to lock up capital for so long. Investors worry about increased government spending, the potential for large amounts of bond issuance to fund it, politics (at the time of writing, the UK 30-year gilt had ticked up to 5.4%) and much more. They are right to be worried, and current yields still feel like very meagre compensation for those risks.

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“It’s an awkward moment to be an American billionaire,” says The Times. Zohran Mamdani, who has just won the Democratic candidacy to become the next mayor of New York City, is calling for their extinction. “I don’t think we should have billionaires,” he told NBC News. Even the merely wealthy are in his crosshairs. Mamdani, 33, plans to partly fund a radical raft of pledges – including a rent freeze and a scheme for government-run grocery stores – by raising income taxes on New York’s millionaires by two percentage points.

As a progressive Muslim immigrant, the young firebrand bills himself as “Donald Trump’s worst nightmare”. Yet, just a few months ago, few people outside the district of Queens he represents had even heard of Mamdani, says The Economist. His unexpected victory over former state governor Andrew Cuomo has “delighted” fellow travellers, but “scared the living daylights out of many well-heeled New Yorkers”. Although unabashedly left-wing (he belongs to the Democratic Socialists of America, an activist group that believes “working people” should run things), the former rapper’s most effective calling card is his likeability. His success isn’t “primarily about his ideology. It’s about his talent as a new media-savvy politician,” says Jesse Arm of the Manhattan Institute think tank. Some compare Mamdani’s approachability to that of Ed Koch, a charismatic mayor in the 1970s and 1980s. “New Yorkers deserve a mayor who they can see, they can hear, they can even yell at,” he says.

It’s easy to understand the frustration of Mamdani’s opponents, says The New Yorker. “Most have spent years carefully plotting their mayoral runs, building their resumes, political connections and fund-raising networks. Now the kid with the nice eyebrows is running circles around them.” Mamdani’s opponents have tried to nail him for his views on the Israel-Palestine conflict and “tried to make him a bogeyman”. Indeed, the Trump administration has “raised the prospect of stripping Mamdani of his US citizenship” as part of a crackdown on foreign-born citizens, says The Guardian.

Born in Kampala, into an intellectual Ugandan Asian family, Mamdani arrived in New York at the age of seven, grew up in an artistic, radical circle, and became an American citizen only in 2018. He credits his parents for providing him with a “privileged upbringing” – he was educated privately at the Bank Street School for Children in Manhattan (a redoubt of New York’s progressive elite) before attending the Bronx High School of Science and later Bowdoin College in Maine, graduating in 2014 with a degree in Africana Studies. Before he entered politics in 2020 – when he was elected to the New York State assembly – Mamdani “dipped his toe into hip-hop”, under the name of “Mr Cardamom”, says The Economist. He was not successful. He then put in a stint as “a foreclosure-prevention counsellor” in Queens. He recently married artist Rana Duwaji, whom he met on dating app Hinge.

Can Zohran Mamdani become New York's mayor?

Even those fully supportive of Mamdani’s politics might baulk at his lack of experience. But if he beats his Republican rival – Curtis Sliwa, founder of the Guardian Angels – in November, he will become the first Muslim mayor in New York City’s history, as well as the youngest and the first immigrant in decades. “More importantly, he will be the first political star of the left to emerge during Trump’s second presidency.” Mamdani is “the sort of refreshing politician that Democrats have been looking for as an answer to the Visigothic vim of the Maga movement”. But Republicans may be just as delighted by his victory as progressives are. Mamdani is “a 100% communist lunatic”, says Trump. Let’s see if New Yorkers agree.

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What’s in Trump's "Big Beautiful Bill"?

The “One Big Beautiful Bill” – narrowly passed by both houses of Congress – is an “omnibus” bill incorporating a vast array of tax and spending plans, some of which will require further legislation.

The most important move is to make permanent the hefty tax cuts of Donald Trump’s first term that were set to expire at the end of 2025 – this will cost the federal government $4.6 trillion over ten years. There are also some new tax cuts, including tax breaks on tips and overtime pay, but only until 2028.

On the spending side, the bill boosts spending on defence and immigration enforcement, and slashes more than $1 trillion in federal spending on social and medical programmes and clean-energy credits. The Congressional Budget Office (CBO) watchdog estimates 11.8 million Americans could lose health insurance by 2034 due to the changes.

Is Trump's "One Big Beautiful Bill" a sensible package?

Not remotely, says The Economist. It’s a “showcase for fiscal incontinence and ideological exhaustion”, which will attach “to a body of government-shrinking Reaganism an appendage of populist Trumpism”. It is also disfigured by carve-outs and pork-barrel incentives granted to individual lawmakers in the scramble to get it through Congress – and its effects will “menace” the US economy for a decade.

The package doesn’t make sense politically or economically, agrees Gabriel Rubin on Breakingviews. Politically, it’s likely to prove the “most Pyrrhic of victories” as its damaging effects on Trump’s rank-and-file supporters become clear.

What about economically?

Trump’s attitude towards clean energy, tech and the bill’s wholesale retreat from swathes of advanced manufacturing and energy technology will have the Chinese rubbing their hands with glee and their eyes with disbelief, says Ambrose Evans-Pritchard in The Telegraph. The US has abandoned a central front of the Sino-American struggle without a fight, and “has just dropped a big, beautiful, bunker-busting bomb on its own economy”. Rapidly phasing out support for nascent solar and wind industries threatens to “accelerate the effects of climate change, slow job creation and thwart the ascent of power-hungry artificial intelligence”, agrees Rubin. And other spending cuts look misconceived – a dollar in Medicaid spending, for example, leads to more than a dollar’s worth of economic activity. Even more worrying is that the lust for lower taxes will “mortgage the country’s future by teeing up a fiscal disaster”. Trump’s “big, beautiful bill… will get ugly, fast”.

What’s the fiscal impact of Trump's "One Big Beautiful Bill"?

The CBO estimates the package will raise federal deficits by $3.4 trillion over a decade (that’s over and above the existing annual deficits of about $2 trillion). That’s spooked many economists, especially given the US dollar has already fallen 10% this year on fears over long-term fiscal and economic stability.

Currently, the US debt pile is roughly $36 trillion, or 125% of GDP – not far off the 146% seen in Greece at the height of the eurozone debt crisis. Since 2010, the US national debt has ballooned from $13 trillion (or 90% of GDP) in 2010. And on current tax and spending trends, it is projected to hit about $60 trillion by 2035.

According to calculations by Ray Dalio, founder of hedge fund Bridgewater Associates, the Trump package will increase the US national debt from about $230,000 per American family to $425,000 per family. If steps aren’t taken to change this trajectory, says Dalio, “big, painful disruptions will likely occur”.

Haven’t we heard this before?

Fiscal hawks have been “predicting a debt-driven financial blow-up” in the US for decades, says John Cassidy in The New Yorker. It hasn’t happened. The underlying strength of the US economy, the global appeal of dollar-denominated assets, and the “belief that, in a pinch, Congress would react responsibly have staved off catastrophe”. But “nobody can predict how long this safety net will hold”. If Trump persists with his attacks on the US central bank, the Federal Reserve – and especially if he succeeds in replacing its boss, Jerome Powell, with someone more agreeable to big, inflationary interest-rate cuts – there would be a real risk of a “Turkey-style outcome, in which the markets lose faith in a highly indebted government led by an autocratic right-wing populist, with dire consequences for stocks, bonds, the currency and the economy at large”.

Are things really that serious?

Yes. Goldman Sachs calculates that, if Congress postpones fiscal tightening for another decade, the US might need to cut spending or raise taxes by an annual 5.5% of GDP to stabilise the debt-to-GDP ratio.

What Trumpites appear to be hoping, says Kenneth Rogoff in the Financial Times, is that a sustained return to ultra-low real interest rates will ultimately save the day. “But should the US, which aims to be global hegemon for another century or more, be betting the farm on this?” Clearly not. Over the past 15 years, US growth has been underwritten by historically low interest rates. But higher rates mean debt servicing costs will eat up an ever bigger slice of the budget, with all the risks that entails.

What risks are those?

At some point, the US will face a bond-market backlash, debt spiral and fiscal blow-up, says Gerard Baker in The Times. “Trump may yet get lucky and avoid his Liz Truss moment, but the spectre of the former prime minister’s fate awaits some American some day.” If the ballooning debt pile were accompanied by a serious and coordinated economic and industrial strategy, it might start to make sense, says Kyla Scanlon in The Free Press. Alas, of that there is no sign. While the US cuts taxes in the hope that will create new industry, China continues to directly invest in advanced manufacturing, critical minerals and industrial capacity. This deficit expansion without a purpose is a high-risk gamble. “The extraordinary cost will come due eventually, and America’s young people will be left to pay it.”

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The price of copper hit a record high in the US yesterday (8 July) as president Donald Trump suggested that imports of the red metal into the country could be slapped with a 50% tariff.

Trump told reporters “today we’re doing copper… I believe the tariff on copper, we’re gonna make it 50%.”

Copper futures on The Commodity Exchange (COMEX) spiked to $5.69 per pound, 13% higher than they had been trading prior to Trump’s comments, as US traders rushed to lock in supply of the key industrial metal before the tariff takes effect.

“With tariffs looming, US buyers have rushed to bring in copper ahead of schedule,” said Tom Bailey, head of research at HANetf. “But much of this metal is not being consumed. Instead, it is sitting in warehouses or locked in financing agreements. Due to high US premiums, it is uneconomical to export.”

This so-called “trapped copper” could restrict supply to the rest of the world, pushing up prices, according to Bailey.

The strength of this market reaction is somewhat surprising given that tariffs on copper have been expected for some time.

“There’s been a Section 232 investigation underway since February, so markets have been aware [that copper tariffs could be implemented],” said Stephen Hare, lead economist at Oxford Economics.

The reason for yesterday’s volatility, according to Hare, is that the level of the tariff proposed caught markets off-guard.

“I think markets were expecting that to be a little bit lower, probably closer to between 10% and 25%,” he said.

Are LME copper prices rising?

Unlike COMEX copper, Trump’s comments appear to have depressed copper prices outside the US. Copper traded on the London Metals Exchange (LME) fell yesterday, pushing the premium for US-traded copper over London-traded copper to a record 25%.

This seems slightly counterintuitive, but it goes back to the fact that markets have long been anticipating a copper tariff to be implemented at some point.

“There’s been a massive arbitrage opportunity to try and ship as much copper to the US before the tariffs could come into effect,” said Hare. That has squeezed supply on other exchanges, causing LME copper prices to rise despite global copper supply currently outstripping demand.

Now that copper tariffs are becoming more of a known quantity, and could be implemented imminently, this arbitrage opportunity window is closing. That will likely see copper supply increase slightly outside the US, prompting ex-US prices to pull back.

When could copper tariffs take effect?

The timing of potential copper tariffs will also have a key bearing on pricing of copper outside the US market.

“If they come into effect in ~3 weeks, shipments already on route to the US will likely try to get there still, meaning the ex-US markets shouldn't face excess cargoes immediately,” said Amy Gower, commodities strategist at Morgan Stanley in a research note. “But it will be more challenging to ship any extra cargoes in a 3 week window, loosening ex-US markets going forward.”

The 50% copper tariff that Trump suggested hasn’t yet been officially confirmed, and as such there is no definitive timeline for its implementation. Initially, the White House did not respond to questions from CNN about its timing.

Secretary of state for trade, Howard Lutnick, later suggested that the copper tariff could come into effect in late July or on 1 August, giving US businesses that rely on copper supplies just weeks to secure supply at their current levels.

What is the long-term outlook for copper prices?

There is a deeper structural story at play with copper prices over the long term. Like silver, it is a key industrial metal with applications to a huge range of modern technologies.

“Copper sits at the centre of a looming supply-demand crunch,” said Bailey. “On one side is surging demand driven by grid upgrades, the rapid buildout of AI data centres, and the ongoing urbanisation of emerging markets. On the other is a supply base that is ageing, expensive, and increasingly unreliable.”

Bailey believes that these various demands for copper mean that it is “fast becoming a strategic resource.

“Its role in AI infrastructure and renewable energy has placed it in the crosshairs of trade policy and geopolitical risk,” Bailey added. “Like oil in the twentieth century, copper may increasingly be shaped by politics as much as by geology.”

What do rising copper prices mean for your money?

In theory, rising copper prices would increase inflation, given the centrality of copper to electronics and all manner of other daily spend. As an example of its ubiquity, most of the piping in your house is probably made of copper: any building or renovation work becomes more expensive if copper prices are higher.

The good news is that, as we’ve seen, it is only in the US that copper prices are spiking. Outside the country, they are coming down.

“At the minute, it’s very much going to be the US consumers that are going to pay more of that price,” said Hare. “The UK should be fairly insulated.”

“We are executing a downturn in US industrial production over the next couple of quarters, just because of the impact that the wider tariffs are having,” said Hare.

Since Trump first announced his ‘reciprocal’ tariff regime in early April there have been widespread fears that they could prompt a US recession.

But while copper supply outstrips demand for the moment, that could change in future.

“On current projections, copper supply is not going to keep pace with levels of demand over the long term,” said Hare, echoing Bailey’s views. “In the very short term we’re expecting that this is just a spike in volatility: prices should come back down once there’s a bit more clarity over the tariffs.

“But over the long run, we are quite bullish about copper prices.”

US president Donald Trump signed his so-called ‘Big Beautiful Bill’ into law on 4 July, after the tax and spending package passed a final vote in the House of Representatives. The act extends tax cuts introduced during Trump’s first presidency, as well as introducing new measures.

Among other things, the bill increases standard tax deductions by $1,000 for individuals and $2,000 for married couples. Over-65s will also get increased tax breaks on their social security income.

US taxpayers will be given a bigger state and local tax (Salt) deduction allowance – increased from $10,000 to $40,000 for a period of five years. The Salt deduction allows taxpayers to reduce their federal tax bill by deducting state and local taxes, subject to certain limits.

Tips and overtime were another area of focus. Workers can now deduct up to $25,000 in tips and $12,500 in overtime from their taxable income. These allowances will expire at the end of 2028.

The act also includes tax breaks for businesses, restoring some of the measures introduced in the 2017 package. Companies will be able to write off equipment and research and development costs in the year they are incurred. They will also be able to deduct the cost of building new manufacturing facilities.

Some households and businesses will be pleased to see their tax bills go down, but it comes at the cost of steep cuts to health insurance and social programmes. US borrowing is expected to rise significantly too, adding to the country’s eyewatering $37 trillion in national debt.

While Trump has slashed spending in certain areas, cuts do not come close to offsetting the cost of reducing taxes.

Cuts to spending on Medicaid, green energy and food benefits are expected to total around $1.7 trillion over the next decade, based on estimates from the Congressional Budget Office (CBO). By comparison, tax cuts are expected to cost $4.5 trillion.

Defence and border spending will be given an additional $150 billion and $100 billion respectively under the bill.

Overall, the CBO believes the ‘Big Beautiful Bill’ will add $3 trillion to US national debt over the next 10 years.

Can tax cuts be funded by tariffs – and will they boost US growth?

Trump has previously suggested that he wants to use tariffs to fund tax cuts. While tariff revenues will soften the bill’s effect on US debt, banking group Lombard Odier still expects debt levels to spike.

“Under the [bill] and including tariff revenues, the ratio of US debt held by the public to GDP is set to increase from today’s 100% to 119% within a decade, while under previous policies it would have reached 114%. Without tariff revenues, the budget would raise that ratio to 126% by 2034,” said Filippo Pallotti, macro strategist at the bank.

In other words, Trump’s bill will still push US debt levels higher.

“With little macroeconomic upside and a worsening fiscal outlook, we struggle to see anything beautiful about this budget,” Pallotti said. He doesn’t think tax cuts will lead to a consumer spending boost either. Trump’s extension of the 2017 tax cuts will not change current household cash flows, in his view, while the tips and overtime provision only affects a “small fraction of the population”.

Lombard Odier has not revised its US growth outlook in response to the bill, forecasting 1.3% GDP growth in 2025 and 1.4% in 2026.

Research provider Pantheon Macroeconomics is also sceptical about whether corporate tax breaks will unlock new investment for businesses – at least in the short term while tariff uncertainty is dampening business confidence.

“Investment plans were still depressed in June, even though the House signed off its version of the One Big Beautiful Bill Act in late May,” said Pantheon’s chief US economist Samuel Tombs. “All told, the bill will likely lift business investment in the medium term, but we expect firms to hold back from deploying their capital until the tariff outlook has clarified”.

Is US exceptionalism over?

Against a volatile backdrop, some investors have been asking whether US exceptionalism – a feature of the past decade and a half – is coming to an end.

The US dollar has fallen by around 10% this year as investors react against tariffs, rising debt and Trump’s erratic policymaking. US Treasury yields have also risen as investors demand a higher premium for buying US debt, a traditional safehaven.

Despite this, the S&P 500 soared to another record high last week. It took the index less than a month to recover the losses suffered at the start of April.

“The S&P 500 and tech-focused Nasdaq are once again trading at record levels, meaning the US is rapidly closing the gap with European stocks that emerged earlier in the year,” said Tom Stevenson, investment director at Fidelity International.

“There is a lesson here in not obsessing over rolling news but instead keeping an eye on the investment horizon.”

Despite this, analysts have pared back their estimates for earnings growth based on the tariff outlook.

Factset estimates published earlier this month suggest the S&P 500 achieved annual earnings growth of 5% in the second quarter. Back in March, analysts had been forecasting 9.4%. If the 5% estimate turns out to be correct, it would mark the lowest level of growth since the fourth quarter of 2023.

Not all analysts are overly concerned. Chris Beauchamp, chief market analyst at IG, points out that analysts always start optimistic before revising their forecasts down.

“​What matters is that growth remains positive and meaningful. A 5% earnings expansion in today’s environment represents a genuine achievement, demonstrating corporate management’s ability to navigate challenges while maintaining profitability,” he added.

Analysts at global asset management firm BlackRock believe that US equities will “regain global leadership as the AI theme keeps providing near-term earnings support”, according to a July research note. Its investment institute remains “overweight” on US equities.

“We see scope for overall corporate earnings to stay solid, even if US growth is dented by tariff-induced disruptions and corporate caution,” its strategists said.

British businesses, along with many others across Europe, have always seen the US as the one market they really wanted to crack. It was where they could turn themselves from a regional into a global company. That has started to change.

The US has dropped out of the top three destinations for British manufacturers for the first time in a decade, according to a survey by Made UK. Only 4% of UK-based manufacturers said they would currently consider setting up an operation in the US. Investors are looking elsewhere as well, with a flood of fresh money moving into Europe as the major funds rotate out of US assets. British exports to the US dropped by £2 billion in April, according to the Office for National Statistics, the largest monthly fall on record.

That is understandable. When Donald Trump was elected to the presidency last year there was a wave of optimism that he would run a pro-business administration focused on tax cuts and deregulation. The reality has been very different.

The tariffs have restricted trade, imposed significant tax rises on companies, and threatened to throw supply chains into turmoil. Stocks plunged into a bear market almost as soon as the tariffs were announced, and many US businesses reacted with horror. Worse, the tariffs were chaotically implemented, with levies imposed seemingly at random, and then changed again a few days later. It has been a complete mess, and one that has damaged faith in the administration.

But getting out of the US is also a big mistake. The tariffs were a terrible idea and one that will damage the competitiveness of the economy. But many of them have been lowered already, exemptions have been granted where necessary, and most of the rest will probably be negotiated away in a series of “great deals” negotiated by the president on the golf course. Once it has all blown over, the US will remain the most exciting major economy in the world.

From 2008 to 2025, GDP in the US rose by 87%, according to the World Bank, while in Europe it grew by just 13.5% over the same period. If we rewind to the financial crisis, Europe’s total output was 110% of the US total, but by last year it was just 67%, although, of course, it still has a far larger population.

On any measure you care to look at, the US has been growing at a far faster rate than anywhere on this side of the Atlantic. It has achieved energy independence, mostly by developing fracking, which remains banned in Europe, and is now a major energy exporter. Its tech industry has surged to become by far the most powerful in the world and it is now taking a world-leading position in AI as well. Indeed, its only serious competition in AI is coming from China, with Europe, and the UK, sliding into irrelevance.

Trump’s policies aren’t all bad

Many of Trump’s policies beyond the tariffs will stimulate growth. By offering tax exemptions for overtime, he will encourage longer working hours, and that will boost productivity.

Loosening restriction of bank capital and listings, imposed in the wake of the financial crisis, will make it easier for companies to raise capital, and allow more mergers, and that will help to boost investment.

A lot of the wasteful spending from the Biden era has been scaled back, but the subsidies for semiconductor manufacturing and other high-tech industries are continuing, and that will eventually strengthen its industrial base.

Even the tax breaks for green energy remain in place, with solar power and battery-storage facilities still expanding at a rapid rate across the US, and with extra nuclear capacity now added to the mix. Ironically, it seems increasingly likely that the US will hit the target for a net-zero economy before anywhere in Europe does.

The US market remains a tough one to crack, but there is still more money to be made there than anywhere else. It is hard to see Europe catching up now, or providing the same kind of opportunities. If companies give up on it now, it will only get harder to get back in later. If businesses ignore it because of a few strange decisions by Trump, they will lose out permanently – and that will prove very expensive.

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The 90 days since “Liberation Day” are almost up, and the only trade deals agreed to date are with the UK and China. Will US president Donald Trump reimpose the sweeping tariffs that sent markets into a downward spiral? Trading partners, businesses, households and investors will be hoping the answer to that question is ‘no’.

Comments made by the Trump administration last week suggested an extension was looking increasingly likely, with White House press secretary Karoline Leavitt describing the 9 July deadline as “not critical”.

However, when asked whether he would grant an extension in an interview that aired on Sunday, Trump told Fox News host Maria Bartiromo: “I don’t think I’ll need to… [but] I could, no big deal”. Obscuring his stance even further, the president added: “It’s so simple. We’re sending letters out. I’d rather do it now.”

After promising “90 deals in 90 days”, Trump has perhaps been underwhelmed by the progress made with trading partners since April.

A deal between India and the US has been promised for over two months, but reports suggest the two countries are having trouble finalising it. People close to the negotiations told Politico that Trump’s demands to “open up India” have made it difficult for prime minister Narendra Modi’s government to sell the deal to people at home.

Although the Trump administration confirmed a rare-earth deal with China on Friday, 27 June, details also remain scarce. “Silence regarding the terms suggests that there is less substance to the deal than the Trump Administration implies,” said Jeff Moon, former trade official in the Obama administration.

One relative success has been the trade deal with the UK, announced back in May. This will see car and aerospace tariffs cut to 10% and 0% respectively on UK products entering the US. However, the deal kicked in today (30 June) and no further details have been provided on steel and aluminium tariffs. The two countries previously said they would work to reduce these to zero.

Meanwhile, the US and Canada now appear to be working to an extended deadline of 21 July after Ottawa scrapped plans for a digital services tax over the weekend – an attempt to advance talks that had previously stalled.

“It is extremely difficult to predict what the Trump administration is going to announce on tariffs over the next couple of weeks. Although negotiations are underway with multiple countries, the extent to which these can be finalised before 9 July remains very uncertain,” Nicolo Bragazza, associate portfolio manager at Morningstar Wealth, told MoneyWeek.

“Given the high degree of uncertainty, it is unwise for investors to bet on a given outcome as the consequences may be painful if reality does not turn out as expected. Investors need to think ahead and prepare their portfolios for different market scenarios whilst focusing on fundamentals which are more likely to drive returns over the long term.”

What can we expect in markets?

Markets have more than recovered their post-Liberation Day losses over the past three months. The S&P 500 is almost 9% higher than it was at market close on 2 April. If Trump reimposes the original measures, one possible outcome is a drop in equity markets as investors price in some of the same concerns as before – a weaker growth outlook as trade barriers reduce global activity and push up costs for businesses and consumers.

The real question is whether Trump will actually do this given how bond markets reacted last time. His tariff announcements prompted a sharp sell-off in longer-dated US Treasuries, with yields spiking as a result.

Experts have put forward several explanations for the sell-off. Hedge funds and leveraged investors may have been forced to sell liquid assets like US Treasuries to raise cash to meet margin calls. Investors may also have sold up in anticipation of a tariff-related inflation spike – bad news for bonds. Alternatively, investors may have reassessed the stability of US Treasuries in light of Trump’s erratic policymaking and decided the risk-reward profile was no longer attractive.

Whatever the reason, the sell-off seems to have been enough to frighten the Trump administration into submission. When Treasury yields spike, the cost of US government borrowing goes up. The US currently has $36 trillion in debt, and foreign investors hold a significant proportion of this. If they decide to start dumping Treasuries and yields spike as a result, the US has a problem on its hands.

Speaking at the Investment Association’s annual conference this month, BlackRock’s global chief investment strategist Wei Li suggested that “US debt arithmetic” could keep Trump’s actions relatively contained in the lead-up to the 9 July announcement. “The US cannot afford… to push debt servicing costs to uncontrollably high levels without consequences,” Li said. “Sustainable US debt requires foreign funding. Walking away from the foreign market when debt is that high is not really a solution.”

“Trump always chickens out”

In recent months, the phrase “Trump always chickens out” – or TACO – has gained traction among Wall Street traders, who have identified a pattern of dramatic policy statements followed by subsequent U-turns. It is possible we will see something similar this time around – either in the form of another extension or an easing of the initial tariff rates.

“It’s surprising that we have had so few trade deals since the 90-day period began, yet financial markets are currently showing no signs of concern. Investors might simply be wise to Donald Trump’s style of negotiation,” said Dan Coatsworth, investment analyst at AJ Bell.

“The US president likes to push things to the edge and play the game of ‘who blinks first’. He might be hoping that foreign trade officials buckle under the pressure of the imminent timeline and agree to trade terms that are heavily weighted in America’s favour to avoid the worst-case scenario of tariffs reverting back to the ‘Liberation Day’ plan.”

Both Coatsworth and Bragazza point out that any positive news, including an extension of the 9 July deadline, could result in a rally. “Ninety days is not a long time to conduct talks with a large number of countries, and the Trump administration might come out and say negotiations have so far been constructive and need a bit longer to conclude,” Coatsworth said.

The market response could also vary from region to region, depending on the severity of the tariffs and how successful negotiations have been. Trump is unlikely to treat all countries equally and may offer more generous terms to countries with a better relationship with the US. Those with a strained relationship could fare worse. Bragazza highlights the EU as one example, arguing that a “lack of progress on the negotiating front” could result in a “negative market reaction”.

At a press conference on 27 June, European Commission president Ursula von der Leyen said the EU was ready for a deal, but that all options remained on the table. “We are preparing for the possibility that no satisfactory agreement is reached… and we will defend the European interest as needed,” she added. Reports suggest Brussels is resigned to the fact that a 10% baseline tariff is likely to remain. Some level of tariff on automobiles, steel and aluminium is also expected to stay.

The Trump administration increasingly seems convinced that the US dollar’s status as the world’s reserve currency is a burden, not the “exorbitant privilege” that it is often said to be. Key economic advisers such as Stephen Miran believe that the persistent strength of the dollar has driven the deindustrialisation of the American economy by making exports less competitive.

Economists can legitimately debate this. There could even be a smidgen of truth in it, although blaming the rest of the world conveniently ignores poor decisions willingly made by US corporations and politicians. However, treating the dollar’s unique status and strength as yet another example of America being ripped off ignores some obvious benefits.

These include higher margins and lower inflation, but even more important is the impact on markets. The role of the dollar means that Treasuries have been the global reserve asset, which will have made it cheaper for the government to fund itself. Yet there are hints that this is now going into reverse.

The end of American exceptionalism

The most common theme among investors outside the US is that American exceptionalism is over. The rest of the world has been rattled by poor governance, soaring deficits and growing fears of some new anti-foreigner measures (section 899, a provision in the new budget bill that would increase taxes on US income for foreign investors, is constantly mentioned).

It would be a huge exaggeration to say that investors are fleeing the US, but it is clear that they are reconsidering the structural overweight to American assets that most have. The consequences go beyond Treasuries, since other US assets also benefit from strong demand. For example, reserve currency status has also created a huge cost of capital advantage for US companies, argues Alec Cutler of Orbis. This will now shrink, he says – another reason, on top of high valuations and soaring capital expenditure for big tech, why US stocks will enjoy fewer advantages in future.

Disorderly change

Still, this sounds like a gradual change – a reason to be less bullish on the US, but not a source of vast upheaval. While the dollar’s share of central bank reserves has declined from 60% in the early 2000s to about 46% now, according to the European Central Bank, it is dominant in payments (almost 90% of currency trades involve it). It is impossible to imagine a rapid move away from the dollar: no other currency has the same liquidity and market depth.

Yet the unpredictability of the US government – the risk that it will destroy one of its strengths because it sees it as a weakness – means that we can’t dismiss this risk. Sometimes, disorderly change is forced on us. This may be one reason for gold’s continued strength. The trend in reserves since 2008 (see chart) points to demand for a reserve asset that no government controls. Donald Trump will probably accelerate that shift.

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The US has been the centre of the global economy and stock investing for decades, so much so that it has come to seem unassailable.

However, last year saw numerous challenges to the notion of US exceptionalism: a belief that the US is qualitatively distinct and superior to other nations.

A glance at the US stock market’s performance compared to other regions over recent years appears to justify this belief. The S&P 500 outperformed the MSCI World Index (an index that seeks to capture the global stock market) over the last three-, five- and 10-year periods.

But in 2025, US stock market dominance was rocked by several events.

The emergence of DeepSeek, for example, sent the S&P 500 down 1.5% in a single session because it struck right at the heart of the idea that US companies had a de facto monopoly over the development of cutting-edge artificial intelligence (AI).

That was followed by market turmoil in April following ‘Liberation Day’ tariffs, as well as fears that the AI bubble could burst, especially during the second half of the year.

It added up to the FTSE 100 outperforming the S&P 500 over the course of 2025 for just the third time in the last decade.

“Momentum has cooled a little as investors weigh up [US president Donald] Trump drama against what should be a strong earnings season,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown, following the S&P 500’s second consecutive weekly decline in the week to 23 January.

The S&P 500 gained just 1% in 2026 through to that date; the FTSE 100 gained double that amount, while the Euro Stoxx 50 gained 2.6%.

Is the age of US stock market dominance over? And where should you invest for 2026 if so?

The US economy is still going strong, but is that good for stocks?

Revised estimates released on 22 January showed the US economy grew faster than expected, at 4.4%, during the third quarter (Q3) of 2025 – its fastest pace of growth since Q3 2023.

According to Hugh Gimber, global market strategist at J.P. Morgan Asset Management, 2026 “should be a reasonable year for the US economy”, with Trump keen to pull whichever levers he can to get the economy and the stock market on a positive footing ahead of midterm elections in November.

However, analysts at Bank of America have questioned whether or not that is good news for the US stock market. A team of analysts led by Savita Subramanian, equity and quant strategist at Bank of America Securities, published a report on 23 January observing that US stocks (counterintuitively) tend to underperform when GDP and earnings per share (EPS) growth are both high.

“Stocks anticipate recoveries, tend to rally most on ‘disaster averted’ scenarios – when expectations are low,” said Subramanian. The bank’s current GDP and EPS forecast are “more consistent with middling equity returns”.

Subramanian also observed that “the index is top-heavy in AI, not GDP-sensitive stocks” and relatively light in the more cyclical companies that would respond positively to strong economic growth.

What does dollar weakness mean for US stocks?

There is a further headwind to US stocks in the form of the weakening US dollar.

American investors will be very happy with the returns their domestic stocks have generated of late, but investors from overseas might have cause for concern.

In the week to 23 January, the returns that different investors would have realised varied by their base currency.

“Dollar-based investors saw gains, but sterling and euro investors registered losses thanks to a near-2% drop in the dollar’s global value,” said John Wyn-Evans, head of market analysis at Rathbones. “That raises the risk of money illusion for US investors, whose rising portfolios may mask declining international purchasing power.”

Wyn-Evans observed that the dollar is threatening to fall below the bottom of its long-term trading range, at the same time as silver and gold prices are surging to new all-time highs.

How to invest for the end of US exceptionalism

If you believe the era of US exceptionalism is over, there are some steps you can take in order to protect your portfolio.

One means of gradually diversifying away from the US would be to feed future investments into a global ex-US tracker instead of a global vanilla fund. By doing so, “an investor would slowly be able to dilute their exposure to America”, said Dan Coatsworth, head of markets at AJ Bell.

Coatsworth highlighted Xtrackers MSCI World Ex-USA ETF (LON:XMWX) as one of the most popular choices of global ex-US funds.

You could also invest in some global markets outside the US that are more overlooked. Coatsworth highlighted “greater appetite for UK, European and Japanese investments” through 2025, with all three regions’ major indices having outperformed the S&P 500 so far in 2026.

Global stock markets have gained this morning as a US court has issued a ruling that could potentially block and unwind Donald Trump’s tariffs.

The US Court of International Trade (CIT) ruled this morning (29 May) that the legal basis under which Donald Trump imposed near-universal “reciprocal” tariffs on all imports into the US was unlawful.

“This ruling reaffirms that our laws matter, and that trade decisions can’t be made on the president’s whim,” said Oregon attorney general Dan Rayfield in a statement.

Trump’s administration has immediately indicated that it will appeal the decision. The appeals process could run on for some time and potentially go all the way to the Supreme Court.

“In this rapidly evolving landscape the latest development is unlikely to be the last twist in the tale,” says Derren Nathan, head of equity research at Hargreaves Lansdown. “The world will be watching closely as the United States legal system seeks to hold its highest office to account.”

Should the appeal be unsuccessful, though, the tariffs that have been in effect in varying degrees since 5 April would be unwound.

Any businesses in the US that had paid tariffs on imports under the regime would have their payment refunded, plus interest. These tariffs had been as high as 145% on imports from China, while imports from many other countries had previously been subject to tariffs of 30% or more.

While temporary pauses have reduced tariffs on imports from most countries to a 10% baseline, or 30% in China’s case following a US-China trade agreement earlier this month, the ruling could hamper Trump’s ability to reinstate the tariffs once these pauses expire should he fail to negotiate comprehensive trade deals with the countries.

While the CIT’s ruling is clearly unpopular in the White House, it has provided a boost to investor sentiment, with global stocks and US futures rising this morning.

The FTSE 100 opened 0.6% higher this morning, though it had lost most of these gains by around 10am.

What was Trump’s legal basis for tariffs?

Trump’s tariff regime used an obscure piece of legislation called the International Emergency Economic Powers Act (IEEPA).

Signed by then-president Jimmy Carter in 1977, the IEEPA effectively gives the US president emergency powers to regulate the US economy in response to a national emergency.

Using the IEEPA, and characterising the size of the US trade deficit as a national emergency, meant Trump bypassed Congress when imposing the tariff regime – where he could have struggled to achieve the requisite number of votes, given the widespread view that it is damaging to the US economy.

However, that strategy now appears to be backfiring on Trump.

“Using the International Emergency Economic Powers Act (IEEPA) as a basis for imposing tariffs is legally untested and is now coming under increased scrutiny,” says Lale Akoner, global market analyst at eToro.

“This does not necessarily mean tariffs are disappearing any time soon, as the federal appeals court is likely to take a more favourable view of them,” Akoner adds. “What it does signal, is the beginning of a lengthy legal battle, one that could ultimately reach the Supreme Court, a development with significant market implications.”

White House deputy press secretary Kush Desai criticised the CIT’s ruling in a statement saying “it is not for unelected judges to decide how to properly address a national emergency".

There are other options on the table for the administration should the appeal they are launching against the decision prove unsuccessful. One option, according to Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, “would be to expand the use of other tariff instruments, like the Section 232 on national security grounds, which have been used for autos, steel and aluminium tariffs”.

Because these targeted tariffs used a different legal mechanism, they haven’t been impacted by the CIT’s ruling as yet: 25% imports on all steel, aluminium and cars will remain in place.

Tariff challenge: how have markets reacted?

Most experts viewed the high tariffs that Trump had imposed as potentially damaging to the US and global economy. There are also concerns that they could fuel global inflation by increasing the cost of goods. The possibility that they could be blocked or unwound has therefore generally lifted sentiment.

The pound fell slightly this morning, with the prospect of the tariff barriers being unwound boosting sentiment around the US economy.

The FTSE 100 made a strong start before pulling back.

Asian stocks also responded positively to the ruling. The Shanghai Stock Exchange gained 0.7%, while the Nikkei gained 1.88%. The Hang Seng Index, which tracks companies listed in Hong Kong and mainland China, gained 1.35%.

Oil prices also received a boost. Brent crude was trading 1.17% higher shortly after 10am. The prospect of tariffs damaging the global economy and even potentially leading to a US recession had suppressed oil prices in the aftermath of ‘Liberation Day’, but they have now been boosted both by this news and potential fresh sanctions on Russia, which have mitigated concerns of oversupply.

Gold prices, however, have fallen over 0.6% this morning. The metal is often seen as a safe-haven asset; the market turmoil that accompanied the tariffs’ initial announcement saw gold prices surge, so it is unsurprising that the metal is now falling back.