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  • Writer: Investment Research Partners
    Investment Research Partners
  • 5 days ago
  • 13 min read
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Executive Summary

  • We have lived in a relatively steady US-led global environment, commonly referred to as Pax Americana, since the end of World War II.

  • During this time, common knowledge has developed that helps us frame the world around us.

  • The past half-century has seen a buildout of financial institutions, economic theory, and market models based upon this common knowledge.

  • However, changing dynamics may be challenging not only for the institutions, theories, and models, but also for the entire common knowledge foundation on which they were built.

Pax Americana is defined as “a period of relative peace and stability that extended throughout the area of American influence, beginning with the end of World War II.”[1]  Like most broad, conceptual ideas, I found debates about the dates and the extent of US influence when I was researching this subject.  However, I think it is fair to say that the US has been a global superpower for as long as most of us remember. 

 

Most of us take for granted the leadership role the US has had in almost everything – military might, economic power, academic advancements, geopolitical influence, technological innovation, cultural impact, etc. – during our lifetimes.  There is likely some arrogance baked into that narrative (we are not the leader in everything), but being a unipolar power means you always have a seat at the table and the ability to exert influence on things that matter.  When I think about the epitome of Pax Americana, the image below of Uncle Sam from a 1940s US War Bonds poster comes to mind.[2]


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In 2023, we published a piece titled Coordination to Competition, which explored globalization since World War II and the importance that the relationship between the US and China played in that trend.  We will not rehash that discussion in full here, but it ends by making the case that China has ascended to a level at which it is now a legitimate competitor to the US for global leadership. 

 

In some ways, this piece serves a follow-up to the Coordination piece, exploring what is possible when common knowledge about Globalization, US Exceptionalism, and the US as a Safe Haven breaks down.  I will also explore how these breaks may impact the functioning of investment markets, the definition of risk, and the workings of asset allocation.

 

The title of this piece, Impossible is Nothing, is a quote attributable to Muhammad Ali.  Those three words, while inspiring, miss some of the context of Ali’s thought.  The longer quote, provided below, provides greater context.  What if the champ was on to something?  What if what we call impossible today is subject to rules that may no longer apply? 

 

“Impossible is not a fact.  It’s an opinion.

Impossible is not a declaration.  It’s a dare.

Impossible is potential.

Impossible is temporary.

Impossible is nothing.”[3]


Flawed Assumptions?

This piece explores what I believe to be three key assumptions on which much of the economic and investment common knowledge of the past fifty years has been built – Globalization, US Exceptionalism, and US as a Safe Haven.  I believe shifts occurring in the common knowledge around all three have the potential to materially impact markets going forward.

 

1.     Globalization Forever

One of the major stories in global economics over the past fifty years has been the rise of globalization and the ascendency of China.[4]  Only a few decades ago, parents shopped for Christmas gifts by paging through the Sears catalogue, mailing in an order form, and waiting weeks for a delivery.  Today, we log into Amazon, purchase things manufactured halfway around the world, and have them delivered the next day.  The idea that globalization may be reversing is hard to comprehend right now.

 

It is possible that “reversing” is too strong a term, but global trade does seem to be changing for many reasons.  For example, we are witnessing authoritarian rule challenging democracy globally.  According to the 2024 Economic Intelligence Democracy Index report, only 45% of the world’s population resides in democratic nations (the lowest reading since the index began in 2006), while 39% now live under authoritarian rule.[5]  I believe that the competition between democratic and authoritarian-ruled countries introduces a natural friction to global free trade (the US and China relationship, which is covered in the next section, probably best illustrates this issue). 

 

Similarly, populism is on the rise, as well.  Protectionist policies, most notably the introduction of US tariffs on countries around the world this year, also represent a challenge to globalization.  The Covid-19 pandemic illustrated just how quickly complex global supply chains can grind to a halt.  Understandably, calls for reshoring manufacturing, which is part of the rationale behind tariffs, soon followed. 

 

However, raising effective US import tariff rates to double digits, which hadn’t occurred since the 1940s, will most likely bring some consequences (see J.P. Morgan image below)[6].  If the tariff announcement serves as a reset in global trade rules of engagement, and I think it does, we should expect global trade to shift as a result.


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Rather than global trade grinding to a halt entirely, we may be witnessing a shift toward a more bipolar or multipolar regional trade system.  In this scenario, imagine the US trading with countries worldwide, but within a network of US-aligned partners rather than broadly with everyone.  Similarly, China and the European Union may have their own network of trading partners and alliances.  Regional trade agreements have always existed, but this alliance-based trade may become more pronounced.  If so, trade remains global, but more regionalized and siloed.

 

Regardless of how global trade evolves, we may experience higher baseline inflation in the years to come as globalization is redefined.  In a world with fewer trade partners, more protectionist trade policies, and greater competition between democratic and authoritarian regimes, I think investors should prepare for the potential for higher friction costs in global trade.

 

2.     US Exceptionalism

In the discussion of the Pax Americana concept at the beginning of this piece, I mentioned US leadership post-WWII across a range of subjects.  I believe technological innovation and the ability to not only dream, but to also build big things (e.g., the Manhattan Project, Apollo 11 moon landing, interstate highway system, the internet, etc.) helped propel the US into its role as a global superpower.

 

However, US leadership in technology and innovation is increasingly being called into question. For example, the table below comes from the Australian Strategic Policy Institute (ASPI).[7]  ASPI tracks 44 critical technologies across a range of subject matters, researching which country leads in each, and how close that country is to achieving a monopoly in the space. 


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Surprisingly, at least to me, China currently ranks as the leader in 37 of the 44 categories.  In many of those categories, the monopoly risk is medium to high, indicating that China maintains a significant lead over the US and others in critical technologies.

 

Perhaps we should not be surprised that the US is not the leader in everything technology-related, there have been plenty of signs along the way.  For example, consider the following stories below:

 

  • Chinese company DeepSeek shocked the tech world earlier this year with the launch of their R1 large language model (LLM) that rivaled the leading LLMs by OpenAI and Google at a fraction of the cost.[8]

  • The US accepted a plane gifted from Qatar to retrofit as Air Force One because the production of new Air Force One planes may not be ready for years despite being requested in Trump’s first term.[9]

  • Chinese dominance in rare earth minerals, critical for advanced magnets, batteries, and military applications, has become a big bargaining chip for China in trade negotiations with the US.[10]

  • China has the second largest economy next to the US and has also become the largest trading partner with most of the countries in the world (see below), lessening their reliance on US consumers and markets.[11]


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The advantage that China now has across so many fields is sobering.  David Autor, an MIT labor economist, summarized the state of our competition with China when he wrote, “We’re in the midst of a totally different competition with China now that’s much, much more important. Now we’re not talking about commodity furniture and tube socks. We’re talking about semiconductors and drones and aviation, electric vehicles, shipping, fusion power, quantum, AI, robotics. These are the sectors where the US still maintains competitiveness, but they’re extremely threatened. China’s capacity for high-tech, low-cost, incredibly fast, innovative manufacturing is just unbelievable.”[12] 


Is US exceptionalism ending?  Much like globalization, it is most likely not as simple as “yes or no,” and betting against the US and its markets has not been a profitable trade in a long time.  China faces headwinds of its own, as well – the demographic nightmare of the One Child Policy, the popping of its real estate bubble, and clashes with the West over issues such as human rights and intellectual property theft. 

 

The truth of the matter is that we may not know if US exceptionalism is eroding for a decade or more, but the US is facing greater competition than it did 20 or 30 years ago.  China has leveled the playing field in technology in many ways, and I believe they will continue to expand their soft power globally in an effort to draw countries into their orbit, as the US appears to be turning more inward.[13]  As a result, maintaining meaningful non-US asset exposure may be prudent if we are transitioning from a US-centric unipolar environment to a more multipolar world, in which China chips away at US hegemony.

 

3.     US as the Global Safe Haven

The last of the common knowledge narratives that I believe is being tested is US Treasury bonds as global safe haven assets (the US dollar as global reserve currency may be another, but that topic warrants its own piece).  As with the other two narratives, US Treasury bonds have effectively served in this role for decades.  When the stock market experienced duress, in the form of a correction, bear market, or recession, it is common knowledge that investors tend to flock to US Treasuries to ride out volatility. 

 

However, we saw a different outcome earlier this year after the Liberation Day tariff announcement.  The high level of tariffs came as a shock, and not surprisingly, equity markets experienced a rapid decline.  Typically, we would expect money to flow out of global stocks and into US Treasury bonds (USTs), pushing their price up (and pulling yield down).  However, that is not what occurred in early April, as US Treasury bonds fell, albeit less dramatically, alongside stocks.


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There remains speculation on exactly what caused the strange bond market behavior earlier this year.  Investors may have been concerned about tariffs reigniting inflation, foreign demand for US Treasuries may have dropped as countries expressed anger over the tariffs, concerns over our country’s ability to pay our debts may have surfaced – any and all of these may have played a role.[14]  Whatever the drivers were, what is clear is that the narrative around US Treasury Bonds as safe haven assets during the equity market sell-off was nowhere to be found (as we’ll see below).


The image below is a Storyboard created by research firm Epsilon Theory.[15]  Their process is complex, but the overly simplified version is that they:


  • Use natural language processing to scan vast amounts of global media content for narratives of interest (or more specifically, semantic signatures)

  • Summarize data (volume and density of language) on those semantic signatures with the assistance of artificial intelligence

  • Compare the current readings to historical results for the same subject matter

  • Create Storyboards to frame the narratives of today’s markets in a historical context


In this Storyboard, we are looking at language related to a variety of “safe haven” assets in media over the past ten years.  More specifically, we are looking at the density of language around stories of “Investors Fleeing Toward” gold, the Swiss Franc, the Yen, money market funds, and US Treasuries.

 

I circled two peaks below – one in 2020 during the Covid pandemic outbreak and the other earlier this year during the Liberation Day tariff announcement.  During the Covid-19 outbreak, notice that most of the assets represented in the Storyboard shot up in value.  What you see is that narratives about investors fleeing to safe haven assets were alive and well in media coverage during that time, as equity markets were falling. 

 

If you examine previous peaks, you’ll see a similar pattern; narratives about safe haven assets were relatively well-represented during times of market turbulence.  That is especially true for US Treasuries, as you see large sections of light orange in most of the previous peaks.


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Now look at the circle on the right representing the tariff announcement earlier this year.  Investors fleeing to gold (dark blue), the Swiss Franc (dark orange), and money market funds (light blue) are well-represented, as expected.  However, US Treasuries (light orange) are all but absent, meaning that the narrative of investors fleeing to USTs in media coverage was nearly non-existent compared to past market downturns.    


If you think this may be an anomaly and US Treasuries will continue to act as a safe haven in the future, that is certainly possible.  However, part of my definition of a safe haven asset is something that rises when risk assets decline (i.e., negatively correlated to stocks).  Unfortunately, 10-year Treasury bonds have been positively correlated to the S&P 500 since 2021 (see below)[16], so you can argue that US Treasury bonds have not fulfilled their safe haven role in portfolios for a few years.


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It is also entirely possible that this has occurred because we have experienced higher inflation since 2020 than in the prior twenty-year period.  However, what if we remain in a higher inflation period as globalization evolves and reshoring efforts persist?  To be clear, I am not saying that we should abandon US Treasury bonds entirely.  Instead, I am suggesting that we expand our safe haven opportunity set in the event that USTs do not provide the negative correlation to equities that we have come to expect.


Impossible Thinking


“Why, sometimes I've believed as many as six impossible things before breakfast.”

(White Queen in Through the Looking-Glass, by Lewis Carroll)[17]


One of the purposes for a piece like this is to serve as a thought experiment.  We often confuse that which hasn’t happened to us yet with that which cannot occur.  Or to circle back to Ali’s quote, we find that what we called impossible yesterday was simply temporarily improbable.

 

If common knowledge about some of these foundational narratives that have been around for decades is changing, what then?  At a minimum, investors should maintain an open mind and avoid reverting to old habits.

 

From my perspective, investors should at least consider:

 

Expanding the Definition of Diversification

For decades, many investors have considered diversification as maintaining high quality bonds, such as US Treasury Bonds, to hedge against volatile equity markets.  However, in a world in which some of the underlying foundational assumptions about our markets may be challenged (including USTs not providing the negative correlation we have come to expect), we may want to expand the opportunity set. 

 

For example, incorporating inflation and US dollar hedges such as commodities, non-US fixed income, precious metals, and possibly even cryptocurrencies may prove beneficial if tariffs and protectionist trade policies push inflation to higher base levels.  Additionally, shorter-duration bonds tend to be less interest rate sensitive, providing some protection in a rising interest rate scenario.

 

Additionally, incorporating volatility hedges like long-short and hedged equity strategies may make sense in equity portfolios.  Geopolitical crises and tariff escalations can move markets quickly.  The incorporation of these strategies may provide some downside protection and help smooth long-term investor returns.

 

Maintaining Meaningful Non-US Equity Exposure

If we are transitioning from a US-led unipolar trade environment to a bipolar or multipolar regional environment, diversification across regions may become a more important factor.  Using this year as a case-in-point, we have seen the US dollar fall more versus other currencies in the first half of 2025 than in the past 50 years.[18]  That has helped propel non-US equities to a meaningful outperformance versus domestic peers so far this year.[19] 

 

Rather than global equities all rising or falling together, it is possible that stocks in one region rise while others fall.  If that is the case, owning a meaningful exposure in non-US equities may become even more important moving forward.

 

Prioritize Adaptability & Liquidity (especially for those taking distributions)

I would not be surprised if we continue to experience bouts of volatility in global markets if common knowledge continues to shift.  If so, maintaining sufficient liquidity – either for ongoing distribution needs or for opportunistic rebalancing – will remain as important as ever.  Money market funds and short-duration bond strategies are obvious examples of liquidity, but prioritizing dividend-paying stocks may also help immunize ongoing distribution needs.

 

To paraphrase the famous Mark Twain quote, the reports of the death of globalization, US exceptionalism, and US Treasuries may ultimately prove to be greatly exaggerated.  Major trends tend to play out over years or decades, not necessarily days. 

 

However, common knowledge about many market assumptions may gradually be shifting, and we believe that warrants revisiting investor goals and rethinking portfolio construction at a minimum.  As always, please reach out if you would like to schedule a time to discuss these topics or to review your specific situation in greater detail.

 

~ Brett Greenfield


Sources

[2] Image Source: https://commons.wikimedia.org/wiki/File:Uncle_sam_war_bonds_(cropped).jpg; N.C. Wyeth</a>, Public domain, via Wikimedia Commons

[6] Source: J.P. Morgan Guide to the Market, September 26, 2025

[19] Source: MSCI EAFE index vs. S&P 500 index comparison, YCharts, as of September 29, 2025

Important Disclosures

Past performance may not be representative of future results. All investments are subject to loss. Forecasts regarding the market or economy are subject to a wide range of possible outcomes. The views presented in this market update may prove to be inaccurate for a variety of factors. These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data.

 

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. Investment Research Partners shall not in any way be liable for claims, and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced, and such data and information are subject to change without notice. Certain third-party sources cited in this material may require a paid subscription or may otherwise be located behind a paywall. If you would like more information regarding any cited source, please contact IRP and we will provide additional details upon request.  Please contact your Advisor in order to discuss your specific situation.


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