America First policies: What are the global implications?

Through its tariff policy, the US administration is attempting to correct fundamental trade imbalances with the rest of the world. The US has the largest current account deficit globally, while countries such as China, Germany, and Japan boast meaningful surpluses.

However, a current account deficit, on its own, offers limited insight. While it indicates the US imports more than it exports, many countries with trade surpluses have historically reinvested their excess capital into US assets, primarily US Treasury bonds but increasingly US equities.

Trade and capital flows together determine the overall balance of payments.

Rebalancing: intentions and impacts

It is difficult to pin down the US administration’s ultimate goals, but recent actions suggest the focus is on narrowing the trade deficit, rebalancing the negative international investment position, and shifting more of the economic and security burden onto foreign nations.

The administration has openly stated its intention to use the US dollar as a tool to boost US exports and support domestic reindustrialisation policies. Broad tariffs and bilateral trade negotiations have also been used as levers to compel surplus countries to buy more US goods, such as arms, liquefied natural gas (LNG) and agricultural products, while simultaneously raising government revenue.

To date, these policies have caused short-term market volatility but have not significantly disrupted overall flows into US assets. However, there has been a change in composition, with weaker demand for unhedged bonds more than offset by stronger inflows into US equities.

As a result, foreign capital flows into the US have remained firm and the trade deficit continues to run deeply negative. Longer-term, more structural changes could emerge.

Looking at existing shifts, we can begin to see three potential future scenarios.

1. Repatriation of portfolio flows: The case of Taiwan

Taiwan saw a significant repatriation of portfolio flows in 2025, triggering a rally in its currency and equity markets.

In late April, the Taiwanese dollar appreciated rapidly due to the onshoring of FX deposits. This signalled two key shifts: a change in capital allocation, suggesting Taiwanese investors may reduce US assets as domestic opportunities grow more attractive; and a possible move by the central bank towards a more flexible exchange rate regime, supported by strong economic fundamentals.

The drivers of repatriation, namely large overseas investments, strong or improving fundamentals, and policy support, are not unique to Taiwan. Markets like South Korea, Saudi Arabia and Germany show similar conditions that could attract capital inflows.

Longer-term, the scale of repatriation will likely depend on US policy. Taiwan’s case highlights both push factors, such as US policy uncertainty, recession risk and concerns about US creditworthiness; and pull factors, including improved fundamentals outside of the US. Together, these forces could drive a global rebalancing of assets.

2. Shifting patterns in Foreign Direct Investment (FDI)

One theme that has emerged over time, and is now potentially accelerating, is geopolitics as a driver of FDI flows. It is increasingly influencing decisions that were once primarily based on cost efficiencies.

For example, companies are diversifying their supply chains away from China, a trend known as ‘China+1’, to mitigate geopolitical risks and tariff exposure. At the same time, China is continuing to move its own exports up the value chain, leaving opportunities for other countries with large and relatively low-cost labour forces to take a greater share of lower value exports.

As FDI into China declines, countries straddling geopolitical fault lines are attracting investment and positioning themselves as links between the US, China, and other major economies.

Meanwhile, US outbound FDI is declining just as China ramps up its own overseas investments. The result appears to be that regions outside the US are strengthening economic and political ties with each other, suggesting US protectionist policies may be contributing to increased cooperation among other major economies.

3. Increased fiscal spending in Europe

Deeper regional cooperation within Europe reflects a concerted push towards greater economic and strategic autonomy. Increased fiscal expenditure is partly in response to US tariffs on European imports, as well as the war in Ukraine.

The removal of the German debt brake has paved the way for a dramatic increase in fiscal spending in the region, with a goal of stimulating domestic consumption and supporting long-term growth.

The result could be a reduction in the region's current account surplus over time and in turn reduce the recycling of capital flows to the US. This is particularly true for European countries with high savings rates, such as Germany, which have a long-standing history of exporting excess savings to the US.

If Europe manages to successfully stimulate growth, US assets could become relatively less attractive as investment opportunities improve across the region, potentially setting the stage for a shift in global financial market dynamics.

What to watch

These three scenarios illustrate the changes already underway in global trade and investment. As the US continues to pursue its America First policies, the rest of the world is adapting to new opportunities and challenges. Navigating this environment will require nimble, flexible and more active management of equities.

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