Economist Peter Schiff contends that former President Donald Trump's emphasis on "America first" has ironically relegated U.S. investments to the back of the pack.
What Happened: Schiff argues that massive foreign inflows from trade surplus nations partly fueled the longstanding dominance of American stocks and bonds. Those same flows could slow or reverse, dragging down U.S. returns amid shifting trade dynamics and weaker dollar expectations.
In a detailed post on X, Schiff asserts that this trend is already emerging, pointing to diverging returns seen by European investors. Measured in euros, the S&P 500's losses appear more severe than they do in dollar terms.
“So far in 2025, the S&P 500 is down 8.6%. But measured in euros, the way European investors would look at it, the S&P is down 16.6%,” Schiff explains.
Conversely, Schiff notes that the German DAX looks far more appealing to an American portfolio, especially as dollar weakness amplifies overseas gains.
Schiff believes foreign holdings of U.S. bonds may also dwindle, raising interest rates for American borrowers and producing even sharper negative returns for international investors.
See also: Trump Tariffs ‘Biggest Shock For Middle Class Families’ Since 1970s, Says Larry Summers
Beyond equity and bond markets, Schiff sees trouble for the broader U.S. economy. He warns of a severe recession triggered by falling asset prices and rising consumer costs, especially if foreign investors divest from Treasuries, forcing the Federal Reserve to prop up both markets and the government's ballooning debt obligations. Should tax revenues drop while budget deficits balloon, a full-blown fiscal crisis could follow.
Ultimately, Schiff argues Americans will be forced to transition from "spenders to savers and from consumers to producers." Although he believes this shift may bring long-term benefits, he predicts significant pain for holders of U.S. financial assets in the years ahead as the cycle of heavy foreign investment winds down.
Why It Matters: The U.S. reversed its longtime free-trade stance on April 2, when Trump declared "Liberation Day" and raised import tariffs to at least 10%, with higher "reciprocal" rates hitting dozens of countries. Markets plunged, China retaliated amid a festering trade war. While Trump partially paused these tariffs for 90 days, steep duties on China remain, driving consumer prices up and risking a deeper economic downturn.
Underpinning this shift is the U.S. trade deficit, historically cushioned by dollar dominance. Yet China's preparations — cutting export dependence and innovating in key sectors — highlight a possible long, bitter trade war.
Schiff isn’t the only one sounding the alarm bells on the economy. Ray Dalio, the founder of Bridgewater Associates and one with a proven track record of rightly forecasting financial disaster, expressed his apprehension about a possible economic crisis in an interview on Sunday.
A growing number of market experts now believe the chances of a recession hitting the US economy are rising due to the upcoming impact of tariffs, declining consumer sentiment, and spending cuts by the new administration. That said, Goldman Sachs did a U-turn on its call for an outright U.S. recession last week just before Trump announced a 90-day tariff pause for countries that have not retaliated against U.S. trade measures.
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