The American economy really is exceptional. It is richer, more innovative, and continues to expand at a high rate compared to most of the developed world. It has been extra special over the last 15 years, with its equity market outperforming any other country as growth prospects for China and Europe dimmed.
But it seems like its exceptionalism might be ephemeral. Uncertainty around trade and the future strength of the dollar has led some big European investors to retreat from American stocks. The problem may go deeper. Less than 100 days into a second Trump administration, commentators are already discussing the coming end of American exceptionalism.
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Many things make the American economy exceptional. For one, it houses the deepest and most liquid capital markets, which help channel money to its more productive uses. But what makes it truly extraordinary is its dynamism, which underpins innovation and productivity, attracting talent from around the world.
To figure out if America’s best days are behind it, it is necessary to separate short-term exceptionalism based on current financial conditions and longer-term structural exceptionalism that has been a feature of the US economy for the last century.
The short-term exceptionalism was never sustainable. The global financial crisis led investors around the world to pile into the perceived safety and better growth prospects of US assets that persists to this day. American companies now account for 57% of the global stock market. The dollar is the world’s primary reserve currency and US Treasuries are considered risk-free assets.
In recent weeks and months, though, President Donald Trump’s desire to rework American trade relationships, hobble the US economy with tariffs and reduce international dependence on the dollar have made both domestic and international investors wary. The Bloomberg Dollar Spot Index has dropped as much as 4.41% since mid-January, and US equities have declined in 2025 as those in the rest of the world have soared.
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Sure, US stocks and the greenback may have been over-valued and due for a pullback, and Trump’s policies may be accelerating this reversal. But being exceptional does not exempt financial assets from market swings. The world still depends on America’s superior growth prospects. While the dollar may weaken and diminish the attractiveness of US markets overall, it still has no rival as the world’s primary reserve currency.
Whatever happens to the dollar, where the American economy truly stands out is in its long history of innovation. In the 2024 Global Innovation Index report, it had the best scores in research and development (R&D), business startups, intangible assets, the quality of universities, software spending and intellectual property. This feeds dynamism, which historically involved household mobility and higher rates of entrepreneurship.
American exceptionalism is a risk mindset supported by strong institutions that is extremely hard for any single president to undermine. Americans tend to be more open to taking risks and are less dependent on the state, which differentiates them from other rich countries, where citizens prefer more certainty. America rewards risk-taking with relatively low tax rates, bankruptcy laws that ensure failure is forgiven and corporate structures.
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However, nothing is forever. America’s rising debt may crowd out capital earmarked for riskier ventures. Even before Trump, dynamism has been wobbly, in part because of policy choices that have made it harder to move, change jobs or form a business. And although many of Trump’s policies are causing uncertainty, he is trying to address some real problems: The size of government; the politicization of science; a dollar that may be too strong.
More worrisome is a peppy speech delivered by US Vice-President J.D. Vance last month that supposedly celebrated American dynamism but instead illustrated what could actually threaten it.
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Vance is correct that innovation and risk-taking in Silicon Valley are America’s future and indicative of the most dynamic economy in the world. But where he falters is arguing that this can coexist with populist policies. What he described sounded like a new version of universal basic income, with money and productivity for rich innovators, and guaranteed (or heavily subsidized and protected) jobs for everyone else.
What really makes America exceptional is that it encourages healthy risk and opportunity for everyone, rich and poor alike, and has an economy that can compete without heavy government intervention that picks winners and losers and gives handouts to the best connected. ©Bloomberg
