Union Connect: America alone: Report from the IMF Spring Meetings

"America First" leads to gradual isolation of the US
Markets rally as US officials try to back down from punitive tariffs
As the US de-risks supply chains from its partners, these partners may de-risk their portfolios from the US
European bond markets are unaffected by these gyrations and should remain supported by future ECB rate cuts

Meetings of the International Monetary Fund (IMF) and the World Bank usually focus on the global economy. This year's Spring Meetings, held in Washington from 21 to 26 April, were different: the focus lay squarely on the United States, with President Trump's erratic policies casting a harsh spotlight on the country's economic outlook.

US President Donald Trump has managed to capture the world's attention with a barrage of new economic policy announcements. While his Treasury Secretary never tired of insisting that Trump's "America first" motto did not mean "America alone", that is exactly what I see as the outcome of this year's IMF Spring Meetings: America is increasingly on its own. The country has isolated itself internationally and is suffering from an acute loss of confidence among domestic and foreign investors.

The Trump administration's wishful thinking

Some memorable appearances by Trump administration insiders at the IMF's Spring Meetings contributed to this. For example, a White House Special Envoy declared "non-imperial expansionism" as the goal of the new US administration's Latin America policy. Although the US did not want to invade militarily, its goal was to acquire strategic assets in the region at favourable prices. Multilateral institutions such as the Inter-American Development Bank would only be an obstacle to this.

Stephen Miran, Chairman of the US President's Council of Economic Advisers, stated in all seriousness in a speech¹ that the role of the US dollar as a reserve currency does not simply allow the US to live beyond its means by running persistent current account deficits – moreover, since this reserve currency is a public good, other countries should pay tribute to the US through tariffs or other transfer payments. This argument does little to inspire confidence among US allies and the initiative has scant chance of success.

In addition to such vulgar insolence, representatives of the Trump administration have been spreading a lot of nonsense. A year ago, the newly appointed Secretary of the Treasury, Scott Bessent, a billionaire and former hedge fund manager, argued in a noteworthy client letter² that "tariffs are inflationary and would strengthen the dollar – hardly a good starting point for a US industrial renaissance". At a conference hosted by JP Morgan, he suddenly claimed the opposite: tariffs would not be inflationary. Stephen Miran also publicly insisted that Trump's tariffs would not increase US inflation because they would be fully absorbed by trading partners. This is based on the idea that the US has "escalation dominance" – it has the upper hand and can determine the timing and extent of the escalation of the trade conflict. I see this as wishful thinking that is about to face a sobering reality check. The Chinese government seems prepared to let the trade conflict play out longer than the Trump administration, and the result is likely to be higher inflation and weaker growth in the US.

Public discourse has collapsed

It remains surprising that the Trump administration's clearly irresponsible actions have gone largely unchallenged. This is mainly because people with different views tend not to talk to each other. Politicians and policy advisors, business leaders and economists in the US have largely retreated into their partisan camps. For example, the Peterson Institute for International Economics organised a series of events³ on the sidelines of the IMF Spring Meetings with prominent representatives of the formerly dominant economic mainstream, in which not a single participant from the current US government participated. At other conferences, organisers made sure that supporters of the Trump administration were not on the same panel as its critics. Another reason for the breakdown of public discourse is the climate of fear created by Donald Trump and his followers. A senior member of his administration said approvingly: "When seven zeros appear on the phone screen, they know the President is calling, and representatives will change their minds pretty quickly". Finally, there is self-censorship among those seeking public office. In May 2026, the term of Jerome Powell, chairman of the US Federal Reserve, expires and even candidates with only a remote chance of succeeding him, such as Christopher Waller or Stephan Miran, are already outdoing themselves in praising Trump in order to win his favour.

As a result, debates have shifted from what is needed to create prosperity or control inflation to what Trump wants and who is in charge at his court. Forecasting economic developments is thus increasingly being replaced by predicting developments in opaque political leadership circles – an art similar to the "Kremlin astrology" that became popular during the Cold War in analysing the policies of the Soviet Union, and a symptom of increasingly authoritarian power structures in the United States.

The rollback has begun

Meanwhile, the fallout from Trump's first hundred days can no longer be ignored – the stock market has collapsed, US Treasury yields have risen and many observers now expect a mild recession in the US.

Against this backdrop, US government officials have clearly been trying to de-escalate the situation during the IMF Spring Meetings. For example, Donald Trump announced that he no longer intends to fire Fed Chairman Jerome Powell, which contributed to a significant recovery in financial markets. The protagonists of Trump's tariff policy, Peter Navarro and Howard Lutnick, did not appear at all during the IMF Spring Meetings. Instead, Trump sent Treasury Secretary Scott Bessent to please the crowd. At the JP Morgan investor conference, Bessent announced that tariffs on imports from China would be lowered and tariffs on other countries would not be raised above 10%, even after the 90-day grace period, as long as negotiations continued in good faith. This boosted US equity and bond markets further.

There was a similar turnaround in Trump's dealings with international organisations. After he had publicly considered withdrawing from the IMF in January 2025⁴, Finance Minister Bessent made clear in a speech to the Institute of International Finance⁵ that the US government was only keen in reducing the IMF's commitment to climate change mitigation and adaptation and to gender equality.

As Trump blinks and backs down from his policies, some recovery in financial markets is justified. However, a return to previous asset valuation levels seems unlikely in the short term. Trump does not appear to have changed his fundamental stance on international trade – and a unilateral lifting of most tariffs would likely result in a loss of face for him. Trump's attacks on the independence of the judiciary, the separation of powers and the rule of law in the US are also contributing to uncertainty among households, businesses and investors.

The damage is done

Due to persistent uncertainty, companies and investors will become increasingly reluctant to invest in the US, which is likely to have a negative impact on economic growth despite the Trump administration's de-escalation efforts.

There are also concerns about the bond market. In addition to the uncontrolled increase in public debt, foreign investors in the US Treasury market now face the Damocles' sword of expropriation through forced debt restructuring of their holdings, an idea Stephan Miran has introduced into the debate⁶. Price-insensitive holders of US Treasuries, which include foreign central banks, the Federal Reserve and also US commercial banks with excess deposits, are increasingly being replaced by investors for whom an investment in government debt stands in direct competition with other asset classes and who demand higher returns.

In my view, the "de-risking" of international supply chains that the Trump administration is enforcing with a crowbar, could be eclipsed by the "de-risking" away from the US that the rest of the world has embarked on. This applies not only to the strengthening of national defence and the development of payment systems and trade routes that are independent of the US. It is also quite conceivable that institutional investors will reduce their strategic allocations to US equities and bonds. This would contribute to a further depreciation of the US dollar and a steeper US Treasury yield curve. However, it remains unclear whether yields on long-term US government bonds will rise as a result of this adjustment – they might be kept in check by upcoming interest rate cuts and possible market interventions by the US Federal Reserve.

Europe the winner?

The current developments in the US do not appear to be having a negative impact on euro area bond markets. While the Federal Reserve is struggling with the consequences of import tariffs, which are a negative supply shock to the economy and will likely raise inflation, the ECB has a comparatively easier task. US tariffs lower aggregate demand for the euro area: exports to the US will fall. In addition, a stronger euro, lower commodity prices and a possible surge in the import of cheap goods from China that no longer find their way to the US should all hold down inflation in the euro area. The signs therefore point to further ECB policy rate cuts, which should boost the performance of European bond markets.

Finally, it remains to be seen whether the self-induced economic weakness in the US will lead to higher growth in the euro area in the medium term and whether the euro's international role as a reserve and invoicing currency will be strengthened by a shift away from the US dollar as a store of value.

Source: Union Investment, all information, explanations and illustrations are as of 29 April 2025, unless otherwise stated.

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