Investment bank and financial services firm Jefferies has raised alarm bells over the potential reduction in US financial leverage against China and emerging economies such as India, owing to the ongoing tariff war initiated by US President Donald Trump.
The central concern, according to Jefferies’ latest report, is the erosion of America’s economic exceptionalism, driven by its substantial net international investment deficit and chronically low savings rate in contrast to China.
As per the firm, by the end of 2024, the US net international investment position (IIP) had reached a record deficit of USD 26.2 trillion, amounting to 89.9 per cent of its GDP. Meanwhile, household savings stood at just 4.3 per cent of disposable income — starkly lower than China’s 31.8 per cent.
“A major problem for Donald Trump, as it would be for any US president, is simply that China has the savings, whereas America does not,” the report stated.
The bank added that President Trump’s erratic policy moves — including temporary exemptions on electronics and a probe into the semiconductor sector — have contributed to heightened volatility in investment markets.
Jefferies warned, “The one real example of American exceptionalism in terms of financial matters remains the ability to print the world’s reserve currency. Yet this is precisely what is threatened by last week’s risk-off action, in which both the US dollar and the US Treasury bond market sold off in response to US stock market action, which flashed growing recession concerns.”
According to the report, the implementation of broad tariffs has hurt domestic business confidence and consumer sentiment, pushing the Federal Reserve Bank of Atlanta to predict a 2.2 per cent GDP contraction in the first quarter of 2025.
Analysts within US investment circles suggest that President Trump must retreat from protectionist policies and instead adopt pro-growth strategies such as tax cuts and deregulation in order to restore economic momentum.
The report further added, “Trump’s return to a universal, non-discriminatory 10 per cent import tax and abandoning his longstanding tariff and trade war obsessions, and reverting to his bullish domestic tax reform and deregulatory agenda. In such an outcome, argued the writer, ‘his presidency may yet be saved.’”
China’s stronghold as a global manufacturing hub, particularly for US-based brands producing high-value goods at lower costs, further undermines America’s leverage. At the same time, Beijing is warming ties with the European Union, especially in sectors such as electric vehicles — signalling a growing divergence from Washington’s trade policies.
The report recommends pragmatic policy shifts to favour the EU, China, and India — encouraging a more stable and value-oriented investor climate without triggering uncertainty.
Recent data from the World Economic Forum, the International Monetary Fund, and the World Bank indicates that India is poised to become a key investment hub through 2030, while China is expected to emerge as the next economic superpower over the coming decade.
Also read: FPIs back as India stands out in global slump
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