Global "Narrative Shift": Historic Trade War + Historic Fiscal Stimulus + Historic Rise of Technology = The End of "American Exceptionalism"?

The global economic landscape is undergoing an unprecedented "narrative shift."

Over the past three years, investors have generally bet on the "American exceptionalism," believing that the United States leads the world in economic growth, stock market performance, and artificial intelligence. However, the trade conflicts initiated by the Trump administration, coupled with weakening U.S. economic data, have begun to shake the narrative of "American exceptionalism."

Tim Graf, EMEA Macro Strategy Head at State Street Global Markets, pointed out:

"The world is now seeing a change in the American model, and we need to adapt to this situation. The U.S. is no longer a reliable trading partner, and we must take care of our own defense needs."

Global trade conflicts continue, Europe is brewing a trillion-euro fiscal stimulus, and China's technological power is rising, leading to a historic shift in global capital flows. Has the once-prominent "American exceptionalism" reached its end?

The Myth of "American Exceptionalism" Shattered: Trade Wars and Economic Slowdown

After Trump took office, he unilaterally tore up the diplomatic relationship guidelines established since 1945, imposing tariffs on major trading partners and forcing European leaders to rethink how to fund their own security.

The incoming German government has reached an agreement to implement the largest fiscal policy reform since national reunification. As a result, German bonds have faced a selling wave not seen in decades, with 30-year Treasury yields soaring at one point. Dario Perkins, Managing Director of Global Macro at TS Lombard, stated:

"Trump's tariff threats and hardline stance have forced other countries to increase spending."

Mark Dowding, Chief Investment Officer of RBC BlueBay Fixed Income Team, remarked:

"We were long on the dollar against the euro, but we ended that position over a week ago as it lost momentum. Trump's actions have generally diminished the attractiveness of U.S. assets."

Tariffs and trade uncertainties are dragging down the U.S. economy, and companies more sensitive to growth slowdowns are beginning to show fatigue. The U.S. banking index has fallen 8% in the past month, while its European counterpart has risen 15%.

The change in market sentiment has driven a rare divergence in global stock markets. Year-to-date, the S&P 500 index has dropped 1.8%, while European stocks have risen nearly 9%, reaching historic highs, and Hong Kong tech stocks have surged nearly 30%.

The euro to dollar exchange rate has also risen to a four-month high, breaking above 1.07 dollars, with several banks abandoning previous forecasts that the euro would fall to parity against the dollar.

According to the weekly data from the Commodity Futures Trading Commission (CFTC), since Trump took office, investors' long positions on the dollar have halved, dropping to about $16 billion. Investors have flocked to Europe to diversify their investments away from the U.S. market. Lipper data shows that since early February, the funds that had been continuously flowing out of Chinese funds have begun to reverse, attracting about $3 billion.

Europe's Rise, China's Tech Challenges U.S. Hegemony

One major attraction of the U.S. stock market is its large tech stocks. However, it wasn't until late January of this year that the emergence of China's low-cost AI model DeepSeek posed a real challenge to Wall Street's dominance in the AI field. Since January 27, Hong Kong-listed tech stocks have risen by 24%, while a basket of large U.S. tech stocks has fallen by 12%.

Yang Tingwu, Deputy General Manager of Shanghai Tongheng Investment, stated that the Chinese stock market has become immune to U.S. tariff increases, as China's growing strength is supporting domestic assets:

“Look at TikTok, Xiaohongshu, or DeepSeek, China's technological strength is expanding.”

Nevertheless, some believe that the resilience of the U.S. economy and relatively high interest rates will keep the dollar attractive in the future. Nate Thooft, Chief Investment Officer of Multi-Asset Solutions and Global Equities at Manulife Investment Management, stated:

“I do think there is a shift, and we see this as a tactical adjustment rather than a long-term trend change.” He recently adjusted his maximum underweight position in European stocks to neutral