Is American exceptionalism over?

American exceptionalism describes the idea that the United States (US) benefits from structural advantages – economic, financial, technological and geopolitical – that give the country a lasting lead over the rest of the world.

In the markets, this has translated into decades of superior performance by US Equities, unrivalled capital depth, a pivotal US Dollar (USD) and Treasuries that are considered "risk-free".

However, as deficits widen, global trade reorganizes and US President Donald Trump drives a more protectionist agenda in his second term, one question is gaining in intensity: what if this American "premium" were to enter a phase of normalization?

Where does exceptionalism come from?

The American advantage rests first and foremost on vast, liquid capital markets, a predictable legal system, an entrepreneurial culture tolerant of failure and a higher education system that drives innovation.

Tech giants have industrialized networks, data, and artificial intelligence (AI) on a scale unmatched by any other.

The country also remains better off energetically than its developed peers, since it is a net exporter of hydrocarbons.

Finally, the ability of the Treasury and Federal Reserve (Fed) to act quickly in times of stress has often reduced the duration of financial crises compared to other regions.

What's creaking today

Several cracks are fuelling doubt. Deficits and debt are imposing a more costly budgetary trajectory, with interest charges now weighing on political trade-offs.

Trade policy is once again becoming an offensive instrument, with tariff hikes and threats targeting allies and rivals rewriting supply chains.

These measures may support domestic sectors in the short term, but they raise costs, complicate cross-border investment and pose a risk of retaliation.

Added to this are more political elements. Domestic polarization and debates surrounding the independence of institutions (notably the Fed) feed a subjective risk premium.

Finally, Stock market concentration, with an outsized share of earnings and performance coming from a small techno group, makes the index more sensitive to an idiosyncratic shock.

The counter-arguments

Ending exceptionalism would require other blocs to simultaneously combine market size, rule of law, financial depth, capacity to absorb global savings, technological leadership and energy security.

However, neither Europe (financial fragmentation, demographics), nor China (capital control, governance), nor the emerging markets (institutional, size) yet tick all these boxes.

AI and advanced semiconductors are still mostly captured by the American ecosystem (venture capital, universities, cloud, solvent customers).

Even weakened by cycles, the US Dollar remains the dominant reserve currency, and the United States remains the leading global destination for private capital.

Trump, normalization or rupture?

Donald Trump's "America First" strategy has two objectives: to re-anchor production on American soil and to renegotiate trade terms.

In the short term, this will sustain "different" growth, with more domestic capex and fewer imports.

In the medium term, effectiveness depends on the right mix. Too high, too long-lasting tariffs would undermine cost competitiveness and impoverish consumers, while "surgical" targeting could accelerate the relocation of strategic segments (energy, defense, power electronics) without breaking the investment momentum.

What the markets are watching

Three gauges could tell whether exceptionalism is rebalancing or cracking:

• Valuation premium: As long as US earnings are growing faster and are of better quality (margins, cash flow, disciplined buybacks), a Price Earnings Ratio (P/E) premium is justified. A broadening of earnings drivers beyond the IA core would reduce concentration risk.
• Cost of public capital: If the US 10-year and 30-year interest rates were to incorporate a "political/budgetary premium" on a lasting basis, the US assets would suffer. Conversely, a credible public finance trajectory would contain this premium.
• The US Dollar's international role: A cyclical downturn is not a downfall. The Greenback's share of trade, reserves, and offshore debt remain the fundamental barometers.

Possible scenarios

1. Benevolent normalization: US growth moderate but above G7, gradual disinflation, calibrated tariff policy. US Equities continue to outperform, with a valuation premium stable, and the US Dollar in range. American exceptionalism loses intensity, but not essence.
2. Tariff bifurcation: More extensive tariffs lead to second-round inflation, higher financing costs, and weakening domestic non-tech margins. Relative catching-up by Europe/Asia in certain value/cyclical sectors. American exceptionalism becomes sectoral.
3. Confidence shock: Perceived budgetary slippage, doubts about institutional independence lead to a US risk premium rising, and US Dollar volatility. Risk of multi-asset re-pricing, but US depth still attracts safe-haven flows after adjustment.

Is American exceptionalism coming to an end?

American exceptionalism probably is not going away, but it is changing shape. The United States retains the structural arsenal that built its primacy - capital, innovation, institutions - but the resulting premium will be more contested, more cyclical, and more dependent on fiscal credibility and the finesse of trade policy under Donald Trump.

For investors, the right reflex may not be to "bet against America", but to price exceptionalism at the right price and no longer take it for granted.