US foreign policy shift impacts global trade dynamics

The new US administration is changing how the country interacts with the world. Countries that rely heavily on the US for exports or military support may face more pressure to agree to deals that benefit the US. This shift is causing immediate challenges, but it could reshape global power dynamics over time. Some policies proposed by the administration make sense. For example, there is a strong argument for Europe to increase its military spending in response to security threats. However, the administration’s approach signals a willingness to use the US's significant economic and military power to negotiate beneficial deals. US allies and adversaries may push back, but they will likely still agree to terms. Investors need to be aware of the changing landscape. The reliance on US consumers for trade may decline. The US administration views trade deficits as a result of other countries exploiting trade rules, while some argue it stems from US consumers spending beyond their means. Other countries may step in to meet consumer demand that the US cannot fulfill. The focus on more transactional foreign policy means countries will seek to lessen their reliance on the US, especially in supply chains. Europe, in particular, will need to increase military spending, ideally on locally made equipment. In the long run, this situation presents opportunities in emerging markets like China, Russia, and the Middle East. Although US assets have been dominant, recent geopolitical events have prompted central banks to consider diversifying away from US investments. Gold has gained popularity as a result. For investors, the shift in US policies could change how different markets grow in the future. Increased geopolitical tensions may make some US companies less attractive and lower their stock values. This suggests that the dominance of US financial assets in global investment may be nearing its peak. Long-term returns for non-US equities have historically been higher, but US stocks have outperformed recently. This may be changing, especially if the US dollar continues to weaken. A drop in the dollar's value could lead to stronger performance for non-US assets. Therefore, diversifying investment portfolios to include non-US assets is becoming increasingly important.