America the Unstable

Markets are signalling their response to the emerging market characteristics of the United States under President Donald Trump.

- Rana Foroohar

America under Mr Donald Trump is an emerging market. That's my takeaway from the last few days of tariff chaos and its fallout.

When I first raised this idea in October 2024, I pointed out that emerging markets are often characterised by uncertain economics, corrupt politics, institutions that are too weak to enforce democratic norms, violence and social polarisation. The US has been heading fast in that direction since 2016, for reasons we know all too well, though asset prices and borrowing rates hadn't yet reflected it.

Instead, we frequently saw US equities and currency rising during periods of political and economic stress between 2016 and 2024, thanks to the haven status of the dollar.

It didn't seem to matter that all the things that had bolstered American companies, from low rates to financial engineering to globalisation itself, were tapped out. US asset markets seemed impervious to the notion of a dollar-doomsday scenario that would send both currency and asset prices tumbling.

Mr Trump has finally ended America's exorbitant privilege. The President's erratic leadership style, which reminds me of the guy who pulls off his steering wheel so that the other driver will be forced to swerve, is now endangering his country's currency and equity values, as has always been the case in other, non-exceptional political economies with this much turmoil.