Trump tariffs hurt U.S. economy; stocks and dollar decline

Wall Street’s belief in "American exceptionalism" has taken a hit recently. Growing political and economic uncertainty around Donald Trump’s tariffs has caused both stocks and the US dollar to drop significantly. So far this year, the dollar has fallen 4 percent against other major currencies, while the S&P 500 index of stocks has also decreased nearly 4 percent. These declines are unusual and have not been seen in such a sustained manner for decades. Normally, increases in the value of US financial assets outperform those in other countries. However, doubts about the US economy have led to one of the fastest corrections in stock markets since the 1970s. Goldman Sachs noted that simultaneous drops in both equities and the dollar are rare. The turmoil is linked to Trump’s trade war, which has raised concerns about the future of the US economy. The Federal Reserve recently downgraded its growth forecast, citing tariffs as a major reason. Before this year, US stocks had been thriving, climbing 54 percent from 2023 to 2024. Initially, after Trump’s election, stocks and the dollar surged on hopes that his pro-business policies would drive growth. But as tariffs on imports from countries like Mexico, Canada, and China were introduced, investor confidence began to waver. JPMorgan analysts indicated that the optimism surrounding the dollar has faded. They attributed this to uncertainty surrounding the tariffs and a dip in US economic activity. In contrast, other global market indices have performed better; for example, the MSCI World index, excluding the US, has risen nearly 9 percent this year. Investors seem to be shifting their focus away from US assets. Some experts, such as Scott Chan from California State Teachers’ Retirement System, noted that Trump's many executive orders are creating uncertainty in the market. This trend could indicate that investors are diversifying their portfolios beyond US holdings. However, economists caution against assuming the decline of American exceptionalism is permanent. While many investors are cautious, there is still significant money flowing into US Treasury bonds, particularly short-term ones, indicating some level of confidence. Analysts emphasize the need for hard data to confirm future economic trends. Ultimately, the situation remains fluid. Experts believe that although there are growing concerns about the US economy, it is too early to declare the end of American exceptionalism. They stress that robust evidence will take time to emerge.