Trump Administration Signals Shift in US Economic Policy, Encourages Foreign Investors to Repatriate Funds

The Trump administration has made it clear that one of its primary objectives is to reduce trade deficits with other countries, particularly in goods. The United States imports a significant amount of manufactured goods from other countries, which are often produced more efficiently and at a lower cost. This dynamic has led to a structural capital account surplus, where foreign dollars are reinvested in US-denominated assets such as Treasurys and equities. This has resulted in an artificially strong US dollar and lower Treasury yields, as well as higher equity multiples relative to other countries.

The administration's push to decrease the current account deficit implies a lower capital account surplus. This shift could reverse the trend of lower bond yields and higher equity multiples, effectively signaling to foreign investors to repatriate their funds. Foreign asset managers are already responding to this signal, selling US-denominated assets during their respective market sessions. This action is rational given the potential for higher bond yields and lower equity prices if the capital account premium in US assets is questioned.

The world may need to reprice US Treasury yields to include a risk premium, reflecting the potential changes in the capital account surplus. The durability of this unwind of the current account deficit remains uncertain, but the message from the Trump administration is clear: foreign investors should consider exiting US-denominated assets. The president's stance effectively encourages foreign investors to take their money and bring it home, marking a significant shift in US economic policy.