To The Moon

$S&P 500(.SPX)$

The U.S. Economy Takes Another Hit

Investors Lose Confidence in Trump Global investors are losing confidence in Trump, despite his promises to restore America’s "Golden Age." His actions, however, suggest an economy in decline, with markets continuing to tumble. Meanwhile, his social media outbursts are becoming increasingly erratic.

Escalating Trade Tensions Trump recently claimed that the U.S. lacks free trade and is being exploited by other nations. His solution? Doubling tariffs on Canada—just the beginning of escalating trade tensions. Over the coming weeks, the situation is expected to intensify. The administration is rolling out a 25% tariff on Mexico and Canada, along with a 20% tariff on China, marking the start of a dramatic shift in global trade.

The Plan: De-Industrialization Abroad, Manufacturing at Home The overarching strategy appears to be de-industrialization abroad to force manufacturing back to the U.S. But if anyone still believes Trump is bluffing, they shouldn’t. A wave of trade penalties is set to hit in April, and these initial measures alone could destabilize the global economy, inviting swift retaliation.

Europe Faces a Recession Risk One of the most significant moves will be a 25% tariff on the European Union, the world’s third-largest economy. This could slash EU exports to the U.S. by 70% and trigger a 1.5% drop in EU GDP—enough to push multiple member states into recession. A European downturn would have a domino effect, severely impacting global consumption.

Tariffs on Autos and Semiconductors Hit U.S. Allies Further tariffs targeting automobiles and semiconductors will deal another blow, especially to U.S. allies like South Korea and Japan. Major companies such as Samsung, Honda, and Tokyo Electron stand to suffer, putting even more pressure on an already fragile global economy.

The U.S. Economy Faces Consequences For the U.S., the consequences could be severe. Tariffs will raise costs for American factories, driving up inflation and cutting into consumer spending. Corporate earnings are likely to suffer, a concern reflected in Citigroup’s recent downgrade of U.S. stocks. Meanwhile, China—ironically the supposed weak link in this trade war—has been upgraded.

Capital Flight Spells Trouble As capital flees U.S. markets, Trump is likely feeling the heat. The U.S. economy has long relied on a steady flow of foreign investment, but that flow is now under threat. For years, the mantra was to “buy the S&P and hold.” Today, that narrative is being put to the test.

China Just Got Upgraded

U.S. Exceptionalism Faces a Reality Check The belief that U.S. exceptionalism will never end and that there’s no better place to invest is being challenged. One common argument I hear is: "Why would you invest in companies from a communist country?" But the numbers tell a different story.

China’s Market Outperforms While the U.S. Struggles Since January 2025, Chinese stocks have surged by over 25%, while U.S. stocks have underperformed, dropping more than 5% as of today. This marks a major shift in global capital flows—from the U.S. to China. Ironically, China was supposed to collapse years ago, with critics dismissing its economy as unsustainable. Yet, here we are.

Why Is Money Leaving the U.S.? Despite the U.S. still holding the world’s reserve currency, money isn’t flowing into U.S. equities as it once did. Stock prices are ultimately driven by earnings and sentiment—both of which are working against the U.S. While Trump is focused on reducing deficits and cutting spending, Beijing is ramping up one of the largest stimulus programs in history. Investors are taking notice and positioning themselves ahead of this move.

Lessons from the Last Trade War During Trump’s first term, he launched a trade war with China, imposing heavy tariffs on steel and aluminum. In response, Beijing unleashed massive stimulus efforts. By 2019, China had instructed banks to increase lending, cut reserve requirements, reduce VAT for manufacturers, and invest heavily in government projects. However, in 2021, China popped its own property bubble, leading to a stock market downturn. Now, in 2025, China is restarting its stimulus engine—this time, with a focus on boosting domestic consumption. Unlike past measures, this shift could be long-term.

China Has the Financial Flexibility the U.S. Lacks The more Trump tries to corner China, the more China is forced to safeguard its economy. But here’s the key difference: China actually has the fiscal space to act. Its interest rates are among the lowest in the world, with a 10-year bond yield below 1.5%, compared to over 4% in the U.S. This stark contrast explains why capital is moving. Just as the U.S. attracted massive investment by printing money in 2008 and 2020, China is now in a position to do the same.

Wall Street Adjusts Its Outlook Recognizing these trends, Citigroup has upgraded China’s stock market rating to “overweight” while downgrading U.S. stocks. The rationale is clear—Trump’s economic policies, including the escalating tariff war, are pushing the U.S. economy closer to a downturn.

Job Cuts and the Domestic Slowdown Even beyond trade, domestic challenges are mounting. Under Elon Musk’s leadership, the Department of Justice has cut tens of thousands of federal jobs. When people lose their incomes, they cut spending—leading to lower corporate earnings. So far, over 32,000 federal jobs have been eliminated, further straining the U.S. economy.

The Bottom Line The global financial landscape is shifting. China is actively stimulating its economy, while the U.S. is tightening its belt. As investors follow the money, the long-standing narrative of U.S. market dominance is being put to the test.

US Economy Faces Spending Collapse

Job Cuts and Government Restructuring Many of the employees being laid off are probationary workers from agencies earmarked for dismantling, including USAID and the Department of Education. While I’m not here to debate whether this is right or wrong, the economic impact is undeniable—U.S. spending is set to decline further as more jobs are cut under Elon Musk’s administration.

The Push to ‘Drain the Swamp’ The rhetoric of “draining the swamp” may sound appealing, and there’s no doubt that government waste exists. Reducing the federal deficit is a valid goal, but cutting spending in the real economy has consequences. The U.S. stock market is still heavily supported by deficit spending. From October to February, the U.S. deficit reached a record $1.15 trillion—significantly higher than the $830 billion deficit during the same period last year. If Trump is serious about controlling deficits, even deeper spending cuts will be necessary.

China’s Expanding Stimulus Strategy While the U.S. is tightening its belt, China is doing the opposite. Beijing is ramping up fiscal stimulus, pushing its broad deficit to 10% of GDP. This represents an enormous injection of capital, and China can afford it because borrowing costs are extremely low. The government can lock in 10-year rates at just 1.5%, making it far cheaper to fund economic expansion.

A Tsunami of Chinese Bonds To fuel this expansion, China is issuing a massive wave of bonds—$1.3 trillion in ultra-long bonds, 500 billion yuan in sovereign debt for the banking sector to encourage lending, and 4.4 trillion yuan for local governments. Altogether, bond issuance this year could reach 12 trillion yuan (approximately $1.6 trillion USD). This flood of liquidity is exactly what investors want—more capital circulating in the economy to boost company earnings and counterbalance U.S. tariffs and sanctions.

China’s Economic Resilience Unlike in previous trade wars, China is now prioritizing domestic consumption, making its economy more resistant to external pressures. Even if Trump escalates trade restrictions, China’s internal market can sustain economic growth. This shift represents a long-term strategy rather than a temporary measure.

Global Backlash Against the U.S. Another reason for the U.S. market downgrade stems from the ongoing trade war. The global economy is increasingly turning against the U.S., with Citigroup stating that “U.S. exceptionalism is pausing” for the next few months. In other words, U.S. stocks could continue their decline, and the long-held safe-haven status of American markets may be in jeopardy—at least temporarily.

Trump’s Trade War is Isolating the U.S. By waging an aggressive trade war, Trump is pushing more countries to distance themselves from the U.S. This shift in global sentiment could further weaken U.S. markets, as capital finds new opportunities elsewhere.

Massive Trade War Retaliation

U.S. Brands Face Boycotts and Trade Retaliation Canadian consumers are already boycotting U.S. goods in response to escalating tariffs. The White House has made it clear that the goal of these tariffs is to punish other nations and escalate further if any country dares to resist. "We are finally going to treat nations the way they have treated the United States for far too long," the administration declared. However, Canada may not be prepared for this economic confrontation—Ontario’s Premier already backed down from his bold 25% tariff on electricity after initially threatening to cut off power to the U.S.

Trump’s Tariff Policy and Its Economic Gamble President Trump remains firm, insisting that his tariff strategy will strengthen America by bringing jobs back home. His administration is positioning the U.S. as the ultimate business destination—promising no tariffs for companies operating domestically and the lowest corporate taxes in the world. While this sounds like a winning formula, it also risks triggering global economic retaliation. When the U.S. weaponizes its consumer market, the rest of the world pushes back—and that’s bad news for business earnings.

Aluminum Tariffs and the Economic Fallout Take U.S. imports of Canadian aluminum as an example. The U.S. relies heavily on Canada for this metal, with 75% of its total imports—roughly 2.7 million tons—coming from its northern neighbor. These imports support 700,000 American jobs. By imposing tariffs, Trump is essentially punishing a major supplier, driving up costs in the process. Given that 60% of U.S. annual aluminum consumption comes from Canada, price increases are inevitable. While domestic metal producers may benefit, consumers and households will bear the brunt of inflationary pressure.

Aluminum’s Deep Role in the U.S. Economy The impact of these tariffs extends far beyond just soft drink cans and food packaging. Transportation accounts for over a third of aluminum consumption in the U.S.—it’s essential for manufacturing vehicles from Ford, GM, and Tesla. Packaging makes up 23% of aluminum usage, while the remaining 40% is used in construction, electrical machinery, and consumer goods. In other words, the entire U.S. supply chain is affected. As a result, consumers will face higher prices, leading to lower spending, which directly impacts company earnings.

The Bigger Picture: A Market Correction or an Economic Shift? If just one tariff can have this much impact, imagine the consequences of the full scope of Trump’s trade war. It’s no surprise that Citigroup downgraded U.S. stocks—they were already overvalued, and now Trump appears determined to pop the bubble. The big question remains: will he reverse course to save the markets? So far, there’s no indication he will. Instead, he seems committed to pushing forward, regardless of the economic fallout.

The Steel Industry’s Influence on Policy Even within the U.S., powerful interests are pushing for the trade war to continue. American steelmakers, such as Nucor, are urging Trump to maintain the tariffs, warning that rolling them back would lead to a flood of foreign imports, causing prices—and their profits—to collapse. This internal pressure could make it even less likely that Trump will shift his stance.

Is This the Start of a Major Global Shift? The stock market is forward-looking, and the ongoing correction isn’t just about adjusting valuations—it could signal a fundamental redirection of global capital. As money flows from the West to the East, China’s market upgrade isn’t a coincidence. The longer Trump continues down this path, the more real this economic shift becomes.

What do you think? Is there an off-ramp to the tariff war, or will U.S. stocks continue to decline? Let me know in the comments below.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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