🚫 Boycotting America

Oh hi there, happy Monday.

Bet you’re surprised to see me, given I told you I’d be taking a week off.

Well…I didn’t think we’d see the wildest week for market in decades. And I couldn’t just leave y’all hanging.

So hey, I’m back. Hydrated, tanned and ready to take on this crazy world with you.

Here’s an 8-minute read on what exactly we’re risking in our wallets and our portfolios in this trade war. Special emphasis on the latter, of course.

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America is trying to rewire the global trade order.

And the world is pissed.

Of course they are! We’re trying to manhandle a system that’s been in place for almost a century through dramatic tariffs and pointed threats. If you started nasty rumors about your best friend then started pummeling them with Venmo requests for past happy hours, they’d probably distance themselves from you too.

Today, the rage has reached a boiling point. The rhetoric among global leaders has been surprisingly sharp for weeks now. Our former friendly neighbors to the north are shunning American products en masse and booing us at hockey games (again, can’t blame them!).

Trump has now unveiled (at least) 20% tariffs on each of our top 10 trading partners, then walked them back, then increased tariffs on China to an eye-watering 145%, then backed off of that for iPhones. Maybe. Snip snap, snip snap!

We’ve gawked over tariff headlines and political elbow-throwing. Now, things are getting serious. Because what feels like isolated strikes over a few bottles of Kentucky-made bourbon and a fleet of shiny red Teslas could add up to a significant shift in spending on American products, services and markets.

In fact, it’s already begun.

Americans have an obvious superiority complex.

Biggest economy in the world. Biggest pickup trucks with the widest cabs and fattest tires on the road. Loudest fireworks on the block. A burger and freedom fries. Speak English to me baby, it’s the universal language.

I get it. I am proud of our nation, even though I don’t own a wide-cab truck.

But I think it’s disingenuous (and a little unpatriotic, TBH) to conveniently overlook how foreign interests and open markets have shaped our success. Over the past several decades, we’ve become more dependent on imported goods, foreign factories, international tourists and global efficiencies to keep our grand capitalist machine whirring.

Take the 10 biggest companies on the U.S. stock market. Popular companies that you know and love. They all have a majority of suppliers located out of the U.S., and it’s not because their CEOs enjoy dim sum and red-eye flights. 

Honestly, most economies around the world have benefitted from this. We get cheap goods and materials, they get Taylor Swift and iPhones.

Now, the U.S. has decided to test these relationships, and likely to our detriment. I’ll spare you the takes on how damaging these layers of tariffs could be, mainly because there are PhD-trained economists who can forecast the impacts better than me (and I wrote about this last week).

I want to think through what could happen if the world starts to turn its back on us—not just in terms of trade, but in shopping, vacation, and investment preferences.

And as we disconnect ourselves from the rest of the globe, we may learn how reliant on other nations we really are.

I started thinking about this after seeing this shocking table on Canadian air travel to the U.S.:

Yep, you read that right. Canadian flight bookings to the U.S. have dropped 70%(!!!) from last year. Bookings for April are down by roughly 1 million. Consider the fact that an average of 2.5 million people crossed through TSA checkpoints every day last year, and that drop in Canadian travelers could compare to almost half a day of lost airline activity.

In fact, foreign travel to the U.S. has slipped by as much as 20% over the last month. Spending that would’ve happened within our borders, on flights, hotels, concerts and football games.

Tourism may be directly impacted, but it’s not the only industry vulnerable to an American boycott. That’s exactly what the stock market is trying to tell us. Some of the hardest-hit sectors also generate the biggest percentage of sales outside of our borders.

General rule of thumb: the bigger the company, the more international relationships it has. Our favorite brands may be beloved, but they also have the most to lose in this trade war. Nike, for example, made 72% of its sales outside the U.S. last year. And Nike’s share price has plummeted 16% since Liberation Day.

Foreign consumers can cause a lot of pain for corporate America, and the stock market is bracing for that possibility.

But we need to talk about the most dangerous boycott of all.

The boycott of Wall Street, our secret weapon of global dominance.

We have some of the most liquid and transparent financial markets in the world, and investors clamor over our dollar-denominated investments.

Why? Because we have innovative companies, strong institutions and a stable rule of law.

The numbers speak for themselves. Overseas investors added $1.1 trillion – or half of Nvidia – to U.S. markets last year.

Foreign investors own 29% of U.S. stocks, and 28% of U.S. government debt. They’re almost always buyers, too, in that they’ve snapped up U.S. investments in 70% of months over the past decade.

There’s a common misconception that foreign investors are central banks – or Federal Reserve-like policymaking groups overseas – making investments to stabilize their currencies and control capital flows.. 

That’s not entirely true. Instead, it’s the private sector – banks, insurance companies, hedge funds and regular ole people like you and me. Investors who have more choice when it comes to where they put their money. 

Private investors own a whopping 88% of foreign stock holdings and 53% of U.S. debt holdings.

So as you can imagine, the world could wage a nasty war on Wall Street.

After all, what’s the best way to hurt a capitalist CEO’s feelings? Stick it to their beloved share price.

Or hit your nemesis where it really hurts – through Treasuries, the deepest and most trusted market in the world.

Last week, the price of the 10-year Treasury dropped the most in four decades. An especially weird development considering the magnitude of the move and signals from other markets.

Normally, when people are worried about the future, they flock to Treasuries – one of the safest investments around. Instead, they shed long-term Treasuries at a pace we haven’t seen since Enrique Iglesias’ Hero topped the charts in 2001.

BTW, if you need a primer on Treasuries and debt markets, click here.

We can’t measure foreign investors’ boycotts with precision just yet, but we do know from government data that private foreign investors hold a lot of long-term Treasuries. 

When the Treasury market breaks down, the plumbing for borrowing money dries up. Companies can’t make payroll. Mortgages and auto loans become even more impossible to afford. And if you own bonds to protect your stock portfolio, your cushion (er, parachute) is gone.

Even worse, this could be the first step in a crisis of confidence – when people from all countries sell U.S. investments because they can’t trust America any more. What worries me is the fact that the value of a dollar plunged last week versus other currencies. People aren’t just selling U.S. stocks and Treasuries, they’re moving their money out of the U.S.

A big ole boycott. Or “capital flight”, as the economists say.

I don’t want to be dramatic, but the erosion of trust in the U.S. could have harrowing economic and market repercussions. Like your best friend not talking to you any more, but on a trillion-dollar global relationship level.

Don’t panic. You have more agency—and more breathing room—than you think if these boycotts intensify.

There are tradeoffs. Not everybody who buys from America will abandon us. iPhones are too slick, California is too pretty, and Treasuries are too interwoven into complex trades from banks and other institutions.

There are also interventions. One of these solutions rests in the paws of our favorite D.C. interest rate nerds. The Fed has bought billions in Treasuries to shore up confidence before. Will they? It’s complicated, but not out of the realm of possibility.

Money doesn’t just evaporate. It moves somewhere, and that somewhere could be other international markets or industries. Boycott Treasuries, and get chummy with the German bund (or something like that). It’s smart to invest internationally — different countries have their own strengths and weaknesses, and the U.S.’ dominance is never guaranteed.

The U.S.’ global standing likely won't unravel in a matter of days. We’ve been here before. Lots of crazy external events have threatened the U.S.’ dominance. Yet we still have the most admired companies in the world, despite how badly we want to take a sledgehammer to them at the moment. Market gods, don’t make me regret saying this!

Fight the boycott. If you’re ticked off at this tariff mess, get involved politically or go to a local town hall (of course). What I’m talking about, though, is not backing down. Running into U.S. markets when everybody else is running away.

It feels like every stock out there is getting hammered by this tariff whiplash. But not every company will experience this crisis in the same way. Indiscriminate selling leads to eventual bargains.

And if you’re nervous, raising a little cash here and there or looking at short-term Treasuries can’t hurt.

Hang in there.

Thanks for reading!

Callie

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