The second Trump adminstration has laid bare how America built the new exceptionalism, a Morgan Stanley economist has explained, meaning other countries around the world will now begin leveraging their own economic firepower against trade partners.
Speaking at a global outlook roundtable last week, Morgan Stanley Wealth Management’s chief investment officer, Lisa Shalett, said for many years America’s healthy economy has been underpinned by a trifecta of factors: monetary stimulus, fiscal stimulus, and imported disinflation from trade with China.
This combination was “extraordinarily powerful” for corporate earnings and growth over the past 15 years, Shalett said, as consumers and companies were buoyed by domestic policies without suffering widespread price increases.
But on Trump’s “Liberation Day” (April 2, 2025), the rules of global trade shifted: Suddenly, the world’s largest economy was leveraging new deals with every single one of its trading partners. The only country to fight back was China. As the dust settles and global trade routes are reestablished, many nations may be looking to improve their standing in the new world order.
Shalett said: “Now we’re looking at a situation where, as the world becomes multipolar and China turns to the rest of the world and exports disinflation, the rest of the world is saying, ‘Oh goodness, all of a sudden, maybe my central bank has a wind at its back. We can have monetary stimulus, and I need to have fiscal stimulus because I need to invest in my own defense.’”
Of course, global defense spending around the world is set to increase. NATO countries agreed to a U.S. call to increase the percentage of GDP they spend on defense. Previously, NATO countries spent 2% of their GDP on their militaries; that has now increased to 5%.
With the fiscal stimulus box ticked, next comes the question of whether countries can leverage cheaper goods from China, which are no longer being prioritized for U.S. consumers. Here, too, it seems Shalett’s premise is evident: China’s General Administration of Customs reported in January that its exports were significantly up on a year-on-year basis, increasing by 6.6% in December.
While exports are going up (valued at $357 billion), Chinese shipments to the U.S. plunged 30% in December compared with the year prior, the ninth consecutive down month—suggesting foreign nations are indeed importing disinflationary goods that previously went to America.
The final remaining piece of the puzzle is an easing monetary policy, which many economies also began in 2025. Last year, along with the Federal Reserve, the European Central Bank continued to cut rates and hold them low, as did the Bank of England. So, too, did the central banks of Australia, New Zealand, and Canada, to name a few. Brazil’s central bank has also recently indicated it will soon start an easing cycle.
New leverage
With this in mind, Shalett said nations will increasingly be moving toward bilateral trade agreements and so will be asking themselves: “‘What are the cards that I have to play?’ Every country is deciding, ‘Hey, I actually may have cards to play.’
“Canada has 90% processing capacity of uranium, and that’s critical for nuclear facilities; China has 90% capacity of rare-earth minerals that are needed in a lot of electronics and battery production; so things of this nature are creating opportunities for the rest of the world to have an economic formula that mirrors what the U.S. has been able to—quote unquote—‘pull off’ for the last 15 years.”
As such, “in our humble opinion, having a portfolio that is suddenly more globally balanced seems to make sense to us,” Shalett added. “Our view is that this is a multiyear phenomenon that is worth investing in. We don’t see it as simply a little trade that’s related to 10% dollar weakening; we think it’s a little bit more complicated than that.”