For decades, the US economy has been a major beneficiary of globalisation and rising trade, with innovation and technological advancements supported by years of cheap capital through US fiscal and monetary policies. Over the last 15 years, quantitative easing and low interest rates became the norm, with both consumers and corporates taking advantage of cheap borrowing.

However, the US – with its reserve currency status, large and liquid Treasury market, dominant geo-political standing and economic strength – has been able to borrow unreservedly, spend on questionable and ineffective policies, bloat the federal government and defend wars, in some views, to a point of fiscal irresponsibility. The wealthy have unquestionably benefited from higher US stock prices. Meanwhile, the middle-and lower-income groups continue to struggle, with the inequality divide only increasing.

President Trump’s “America First” agenda

Trump and his Republican administration fully recognise the difficult position the US economy and society are in – particularly the challenges and wealth gap faced by the middle and lower earners, where much of his core support lies.

To balance the US economy - whilst addressing its $2trn annual fiscal deficit and $7trn spending problem - the Trump administration has pursued a modern form of mercantilism using trade policy to upend global institutions and exercising coercive foreign policy thereby challenging security relationships, trade partners and close allies – all in the pursuit of “America First”. In essence, the current administration believes the “status quo” must change, and fast.

Their aim is to increase the share of wealth by strengthening the middle and lower earners, whilst protecting national interests and promoting self-sufficiency through energy independence and continued innovation. Combined with “onshoring” these efforts are intended to create opportunities for all – especially their target electoral base.

The administration is focused on delivering “supply side economics”, otherwise known as “Reganomics” – the economic policies championed by former US president Ronald Regan during the 1980s. These policies, which focused on tax cuts, deregulation and reducing government spending, aimed at supporting business and individuals in the hope of spurring investment, improving productivity, creating jobs, and ultimately driving greater prosperity and economic growth.

Whilst the economic and political agendas may be credible in theory, the current approach and execution leaves much to be desired. Trump’s more active and calculated role in steering the US economy toward its long-term ambitions present risks to investors and US assets in general. The question is whether US assets (including the Magnificent Seven) have reached the end of their relative outperformance compared to the rest of the world. Whilst no one can know the answer for sure, it is clear deglobalisation, the loss of cheap capital and the emergence of Chinese and other AI competitors, now present greater risks to the longevity of US exceptionalism.

So, what does all this mean for the US, and what are the implications for global investors?

The highest tariffs in over a century increase the chances of a US economic slowdown whilst inflation remains elevated (a stagflationary cycle last seen in the 1960s/70s) with investors questioning the prospects of future US earnings growth, and the continued resilience of company margins that have generated such strong investment returns over recent times.

Moreover, the unpredictable nature of trade policies may start to alienate foreign capital investment, as investors seek to avoid or reduce their exposure to the US and reinvest in other regions where valuations are more compelling and historically undervalued by comparison.

Despite the recent weakness, speculation about the US dollar losing its reserve-currency status remains far-fetched. No viable alternative currency meets the scale and systemic requirements to underpin global trade, whilst full scale de-dollarisation is a long way away. However, one emerging dynamic could heighten the risk of a US dollar crisis. Moody’s recent downgrade of the US AAA sovereign credit rating underscores the state of US government debt and the trajectory of its fiscal position. Among the G7 nations, the US has the highest financing needs as a percentage of GDP, coupled with the shortest average debt to maturity.

Despite proposed spending cuts, deficits are still climbing (even before the “One Big Beautiful Bill”) and more of that spending is now going towards interest payments. Net interest expense is set to exceed all non-defence discretionary spending for the first time in decades. The US administration need decisive policy action to preserve the benefits of reserve currency status and avoid a breakdown in US Treasury markets, a warning echoed by JPM CEO Jamie Dimon.

There is no doubt that the responses of global policy makers, the private sector, and increasing populist and protectionist governments will have major implications for global markets, economies, society and the longevity of US exceptionalism in the years to come.

In conclusion

While history may not repeat itself exactly, today’s economic, social and political landscape does carry echoes of the past. The US undoubtedly stands at a crossroads. The Trump administration’s pursuit of protectionism and ideology of supply-side economics is a bold attempt to defend American interests globally whilst reshaping its domestic economy.

Despite these challenges, combined with higher asset valuations and increasing risks around technology sector concentration, there will always be investment opportunities in the US. However, investors should remain active, disciplined and open-minded, drawing on historical context and past cycles to pursue investment strategies that are liquid, balanced, resilient and well-suited to the uncertainty and opportunities that lie ahead. Afterall, “history doesn’t repeat itself, but it often rhymes”.