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Is the world running away from American assets? That is a question numerous commentators have asked after US President Donald Trump unleashed trade tariffs last year — and attacked erstwhile allies and foes alike.
And some hints of unease have recently emerged: a new survey by Bank of America suggests that investor sentiment towards the dollar is souring; a Danish pension fund is shying away from Treasuries; and some investors are shifting to non-US and non-tech equities because there is such a high concentration — and exuberance — around tech in US indices.
But this week, new data has emerged that offers an important cautionary note: the US Treasury reported that overseas investors bought a net $1.55tn of long-term US financial assets in 2025, up — yes, up — from a net $1.18tn in 2024. Of this, $442.7bn were Treasury notes and bonds, and $658.5bn equities.
What does this imply? One obvious point is it shows that fears of a “sell America” capital flight currently are wildly overdone, whatever the world thinks of Trump.
However, there is a second, longer-term, issue that also merits debate: America’s investment position with the wider world. For as tech stocks have boomed in recent years, the tectonic plates of the financial system have shifted in startling ways. And while this dramatic trend has gone largely ignored, it begs the question: what might happen if the flows shift back, in the future?
The key issue is captured in the so-called net international investment position (NIIP) data, which “measures the difference between US-owned foreign assets and foreign-owned US assets”, to cite a handy primer from the Federal Reserve Bank of St Louis.
Entities such as the Brookings Institution religiously track such flows. But non-economists (like Trump) usually ignore them, since the NIIP is so abstract. Some economists, such as Brad Setser, also think it is distorted by corporate tax avoidance strategies.
Economists at the Bank for International Settlements (Stefan Avdjiev, Tsvetelina Nenova and Marjorie Santos) are now working with Kristin Forbes of MIT to model the NIIP more effectively — with eye-popping results.
Take a recent conference paper by Forbes. This shows that 20 years ago America’s NIIP was “just” equivalent to 11 per cent of its GDP, in negative terms. This means that the value of American assets held by non-Americans slightly exceeded Americans’ holding of non-US assets, when you netted out trade and fiscal deficits, sales of US debt and returns on US and non-US assets.
But the most recent data (late 2024) shows this negative NIIP has exploded to the equivalent of 91 per cent of US GDP. That is not really down to the trade deficit or even sales of US debt to foreigners.
Instead, the key culprit is the fact that between 2019 and 2024, US stock indices rose 83 per cent, while non-US indices only rose 9 per cent — meaning more wealth went to non-Americans holding US assets than in reverse.
Thus while the negative US NIIP has exploded, Norway, China, Japan, Canada, South Africa and Sweden have large positive NIIPs. And these imbalances almost certainly widened in 2025, since US stock markets kept surging.
Does this matter? Some economist might argue not, given that the NIIP is an abstract accounting framework. Anyway, Trump loves to celebrate soaring US stocks.
But one message to absorb from this story is that if the US tech bubble implodes, the pain will spread beyond America. Forbes calculates, for example, that if US equity prices and FDI reverted to 2019 levels, Norway, Canada, Sweden and China would see a reversal of the investment gains equivalent to 20-40 per cent of their GDP. Yikes.
A second point is that we need more nuance around America’s “exorbitant privilege”, to coin the phrase launched by Valéry Giscard d’Estaing, the former French president. He resented how non-Americans had to keep buying American debt, even amid US fiscal profligacy, because of the dollar’s reserve currency status, since the pattern seemed akin to non-Americans subsidising the US and enabling the US to live beyond its means.
But the NIIP data shows that “this exorbitant privilege has 1771575073 reversed to become more of a ‘generous giveaway’” from the US to the wider world, says Forbes. Or as a 2022 paper from the economists Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri echoes: “Any ex post ‘privilege’ that US residents might have previously enjoyed has been erased.”
Non-Americans might shrug this off. But the key point is this: beneath the current aura of calm, our global financial system is plagued with stunning, oft-ignored imbalances. Maybe these will quietly correct (a bit) if the dollar falls this year, or tech stocks slide. But don’t bet on that. While global investors keep rushing into the US, we face a wildly lopsided world.