Trump’s trade gamble spurs foreign capital exodus from US markets

Over the past six months, the US dollar has dropped more than 10% against a basket of currencies from the country’s major trading partners — its steepest fall since 1973. It now sits at a three-year low. US President Donald Trump has long aimed to boost exports and cut down on imports. This historic currency drop may help him move toward that goal — though not without unexpected consequences.

Experts talking to American NBC News outlet say the simplest reason for the dollar’s decline is that global investors no longer expect the US economy to outperform its peers, largely due to the Trump administration’s tariffs and growing fiscal challenges. Despite American stocks hitting record highs, equities in other nations have delivered even stronger returns. Simultaneously, as US economic growth slows, the agency's article states that returns on American bonds are becoming less attractive compared to foreign alternatives.

This wasn’t the anticipated outcome. Many analysts — including Trump’s own advisors — believed his tariff policies would strengthen the dollar. Their logic was that as Americans bought fewer foreign goods, the demand for those countries’ currencies would fall, making the dollar stronger by comparison.

Instead, the article argues the reverse has happened. Tariffs have contributed to weaker US growth prospects, making American debt less appealing. Countries like Germany and Japan, once lagging, are now forecasted to grow faster, drawing more investor capital and strengthening their currencies relative to the dollar.

Theoretically, a weaker dollar should boost demand for US exports by making American-made goods cheaper abroad. But whether that’s materializing remains unclear. Ahead of the tariffs, American companies front-loaded imports in the first quarter to dodge impending duties. Second-quarter data — still weeks away — may reflect only a temporary dip following that early spike.

Meanwhile, Trump has announced a slate of investments aimed at expanding domestic production, though many won’t bear fruit for months or even years. For now, one immediate impact for those living inside the US is that travel abroad becomes costlier, as the dollar buys less foreign currency. As experts talking to the outlet put it, more worrisome is rising inflation and diminished purchasing power, since both consumers and businesses remain heavily reliant on imports.

Even more concerning, analysts warn, is an emerging trend: waning foreign appetite for US financial assets. The inflows that have historically helped the US finance its large trade deficit are drying up. Though US stocks remain near record highs, their performance lags behind markets in Europe and elsewhere. “It’s often forgotten that the US relies not only on foreign goods but also on foreign capital,” said Bob Elliott, chief investment officer at Unlimited Funds. “Your bonds and stocks are being bought by Europeans — that’s part of what makes Americans feel wealthy.” A weaker dollar, he warned, could erode foreign interest in those assets, threatening US household wealth.

“In asset management, a clear trend is forming — a rotation away from US assets into Europe,” noted Bank of America strategists Hubert Lam and Christiane Holstein in a June report. “Investor sentiment toward US markets has turned negative due to rising concerns over protectionism, erratic policy shifts, a ballooning deficit, and new tax proposals targeting foreign investors.” As a result, they said, both public and private investors are increasingly diversifying out of the US.

By Nazrin Sadigova