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Elegy of a tragedy foretold — How America lost the plot and its impact on investors

19 May 2025

Given the US’s increasingly precarious grip on the global financial system, it seems that a reorientation of the world’s economic and financial architecture has now begun. Part 1 in a 5-part series.

This is the first of a five-part swansong piece I wrote upon my retirement from Ninety One. The subject matter — the ongoing displacement of the United States from being at the commercial and especially the financial crux of the world economy — is not a thesis that can be summarised in a paragraph (even if Bob Dylan nearly accomplished it in the lyrics of a single song!).

Accordingly, I have broken it down into five logical and more digestible parts.

Introduction

Bob Dylan won the Nobel Prize for Literature in 2016. Considering that he wrote the following lyrics in 1983, does he now deserve to be nominated for the Nobel Prize for Economics next?

Union Sundown by Bob Dylan (1983)

Well, my shoes, they come from Singapore,

My flashlight’s from Taiwan,

My tablecloth’s from Malaysia,

My belt buckle’s from the Amazon,

You know, this shirt I wear comes from the Philippines,

And the car I drive is a Chevrolet,

It was put together down in Argentina,

By a guy makin’ thirty cents a day.

Well, it’s sundown on the union,

And what’s made in the USA,

Sure was a good idea,

’Til greed got in the way.

In 2025, the US manufactures at home only a fraction of what it did previously: the world’s first and third most valuable companies, Apple and Nvidia, mostly outsource the production of their flagship products to contract manufacturers in China and Taiwan respectively.

Even manufacturing for export is a shadow of its former strength: the US’ lead exports today are mostly commodities. Result? Dylan’s Union Sundown.

From manufacturing to services: always a good thing?

Mainstream economics holds that as economies “advance”, they become more service-oriented and less geared to manufacturing. This has been true for every developed country, but particularly the typically current-account deficit-running Anglo Saxons: the US, UK, Canada, Australia and New Zealand.

The move-to-services bias is less prevalent in current-account surplus-running Japan and much of the Eurozone, even if their export-oriented industrial sectors now face formidable Chinese competition (Wolfgang Munchau’s book, “Kaput: the End of the German Miracle” details the challenges now faced by Europe’s industrial behemoth.)

The shift away from manufacturing to services has been especially consequential for the US: manufacturing as a percentage of GDP fell from 27% in the 1950s to 10% today, while manufacturing employment fell from 30% in 1950 to 8% today.

No state has a manufacturer as its leading employer after Boeing recently lost that crown in Washington State to Providence Health. Fifteen of the top 18 employers in the US today are in retail and distribution, a statistic underlined by the fact that Walmart is the largest employer in 22 of the 50 states. Between them, health and education lead in another 24 of the 50 states.

Since China entered the World Trade Organization (WTO) in 2001, US manufacturing production and capacity has plateaued, even as domestic consumption has grown by 70%; the goods component of that consumption growth was in large part met by imports.

Result? The US has lost five million manufacturing jobs this century, underlining the decay of blue-collar Middle America as lamented in JD Vance’s Hillbilly Elegy.

Vaclav Smil, Bill Gates’ favourite author, foresaw the outcome of this outsourcing overseas in his book “The Rise and Retreat of American Manufacturing”.

Smil predicted it would not only erode America’s strengths, but offshoring would make it much more difficult to solve America’s problems: “Without the preservation and reinvigoration of manufacturing, the United States has little chance to extricate itself from its current economic problems…”

Smil’s advice? “Advanced economies must still make things. Take away manufacturing and you’re left with selfies.”

The warning signs were there

Given the US’s deindustrialisation, the writing as to what might come next has been writ large upon the wall of finance for some time now: to those dismissed as Cassandras by mainstream thinking, a reckoning for the US deep-seated economic problems seems unavoidable.

Today’s global trade imbalances are heavily centred on the US. In 2024, with but 4.2% of the world’s population, the US ran 65% of the world’s current account deficits: its external imbalance was $1-trillion. With the US dollar broadly stable last year, this meant the US must have attracted around $1-trillion of the world’s globally mobile capital — again roughly 65% of that pool of savings — via inflows into US financial asset markets to offset that external deficit.

It is worth noting that if it were not for the rise of US oil since 2010 whereby the US has turned from being a material oil importer (previously importing $360-billion worth a year) to a net oil exporter, the US overall current account deficit would be much larger than it is now.

The underside: beneath the equity gloss lies the bond rot

One very visual consequence of these inflows of foreign savings was that they helped the S&P 500 Index rise by 23% in the year ending December 2024. This increased the US’s weight in MSCI’s All Country World (equity) Index to 66%, twice the rest of the world combined.

Hence the US economy was lauded for its exceptionalism: in October 2024, The Economist called it “The envy of the world.”

Rarely noted, however, was that (in 2024) three-quarters of these foreign capital inflows did not favour US equities, but rather preferred US bonds, particularly government bonds: this in turn helped fund more than a third of the US’ 2024 $1.8-trillion budget deficit, a budget shortfall that represented 42% of all government deficits run worldwide in 2024.

The US now owns 35% of global government debt today. For a country with — again — only 4.2% of the world’s population, all these ratios are disproportionately outsized. And, to all but the most blind, the web of precarious imbalances that underpin these ratios — external trade deficits umbilically connected to internal budget deficits – was, by the time of the 2024 presidential election, stretched to near breaking point.

By the pricking of my thumbs, something wicked this way comes

Optimists in 2025 still see merely a cyclical reset ahead, or at worst short-lived recessions in both the US and globally. But to others, including Ray Dalio, founder of the world’s largest hedge fund Bridgewater, they foresee a crisis far deeper than a common or garden recession.

Dalio sees “a classic breakdown of the major monetary, political, and geopolitical orders”. If that happens, the US — by dragging the heretofore mighty US dollar down with it — might then no longer be at the epicentre of the monetary order or disorder that replaces the current set-up.

American economist Herb Stein once noted that “if something cannot go on forever, it will stop”. And, given the US’s increasingly precarious grip on the global financial system, in 2025 it seems that a reorientation of the world’s economic and financial architecture has now begun.

Impending warnings of such a breakdown are increasingly evident: a recent correlation saw US bond markets, US stock markets and the US dollar simultaneously falling, even as gold prices breached $3,400 for the first time.

And few would have predicted that the body blow to this US-centred financial façade would have been self-inflicted by the president of the United States and his Republican Party.

Even fewer can forecast the specifics of how disruptive the consequences might yet be for the global economy.

Trump’s team lays the blame squarely on a rising China…

In Team Trump’s eyes, China in particular is responsible for the US’ predicament. It is the central target of President Donald Trump’s tariff campaign: China’s exports to the US now face an import tax of 145% (albeit suspended for six months).

But, as Dylan noted in 1983, the rot was setting into American manufacturing long before China emerged during the 1990s on the supply side of the global production equation.

Dylan’s 1983 timing suggests the origins of the fall of US manufacturing go back much further than the Chinese “intrusion” that began in the 1990s. DM

NEXT: America’s deindustrialisation began many years before China was in the equation.

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