The second Trump administration has made clear how the United States has built the new exceptionalism, a Morgan Stanley economist explained, meaning other countries around the world will now begin using their own economic power against trading partners.
Speaking at a global outlook roundtable last week, Morgan Stanley Wealth Management chief investment officer Lisa Shalett said that for many years, the healthy United States economy has been supported by a triad of factors: monetary stimulus, fiscal stimulus and imported disinflation from trade with China.
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That combination has been “extraordinarily powerful” for corporate profits and growth over the past 15 years, Shalett said, as consumers and businesses have been buoyed by domestic policies without suffering widespread price increases.
But on Trump’s “Liberation Day” (April 2, 2025), the rules of global trade changed: Suddenly, the world’s largest economy was using new agreements with each of its trading partners. The only country to react was China. As the dust settles and global trade routes are reestablished, many countries may be looking to improve their position 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 my God, suddenly maybe my central bank has a tailwind. We can have monetary stimulus, and I need to have fiscal stimulus because I need to invest in my own defense.'”
Naturally, overall defense spending around the world is expected to increase. NATO countries agreed to a request from the United States to increase the percentage of GDP allocated to defense. Previously, NATO countries spent 2% of GDP on their military forces; now this percentage has risen to 5%.
With fiscal stimulus underway, the following question arises: can countries benefit from cheaper goods from China, which are no longer prioritized for American consumers? Here too, Shalett’s premise seems to be confirmed: China’s General Administration of Customs reported in January that its exports grew significantly year-on-year, with an increase of 6.6% in December.
Although exports are up (valued at $357 billion), Chinese shipments to the United States plummeted 30% in December from a year earlier, the ninth consecutive month of decline—suggesting that foreign countries are, in fact, importing disinflationary goods that once went to America.
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The last missing piece of the puzzle is looser monetary policy, which many economies have also started to adopt in 2025.
Last year, along with the Federal Reserve, the European Central Bank continued to cut interest rates and keep them low, as did the Bank of England. So did the central banks of Australia, New Zealand and Canada, to name a few. Brazil’s central bank also recently indicated that it will soon begin an easing cycle.
New leverage
With this in mind, Shalett said that countries will increasingly move towards bilateral trade agreements and will therefore begin to ask themselves: “’What cards do I have to play?’ Every country is concluding, ‘Hey, I might actually have cards to play too.’”
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“Canada has 90% of the uranium processing capacity, which is critical for nuclear facilities; China has 90% of the rare earth minerals capacity, which is needed in many electronics and battery production; things like that are creating opportunities for the rest of the world to have an economic formula that mirrors what the United States has been able to — quote unquote — ‘accomplish’ over the last 15 years.”
So, “in our humble opinion, having a portfolio that is suddenly more balanced globally seems to make sense,” Shalett added.
“Our view is that this is a multi-year phenomenon worth leveraging in investments. We don’t see this simply as a one-off operation tied to a 10% weakening of the dollar; we think it’s a little more complex than that.”
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