Bank of Canada Governor Tiff Macklem suggested that the US dollar's status as a global safe asset could be diminished due to President Donald Trump's trade policies and increasing fiscal deficits, raising concerns about potential shifts in global financial flows. Macklem had previously identified Trump's tariffs as the "biggest headwind" for Canada's economy, emphasizing the need for a new trade deal with the US, given the close economic integration between the two nations.
Adding to these concerns, recent research from the Federal Reserve Bank of New York highlights a substantial $28 trillion deficit, indicating that foreign investors hold $69 trillion in US assets, while the US owns only $41 trillion in overseas assets. This represents 90% of the nation's current $31.82 trillion GDP. The Fed noted a significant shift from a $260 billion income surplus in 2019 to near zero in 2024 and 2025, and an interest balance that took out $450 billion from the income surplus in 2025, making payouts on US assets a "servicing burden" for the US economy. This is largely attributed to the Fed's aggressive rate hikes, increasing the cost of paying income to foreign investors who own vast amounts of US debt and interest-bearing assets like Treasury bonds and corporate securities.
Further contributing to this imbalance are continued net sales of US assets to foreign investors and a wide trade deficit that has caused a $5.5 trillion deterioration. The robust performance of US equities also inflates overseas portfolios, with foreign investors controlling 18% of the US stock market. This situation means the world owns significantly more of the US than the US owns of the rest of the world. Macklem also noted that high levels of sovereign debt globally, coupled with increased risk premiums on government bonds, limit fiscal flexibility and interact with vulnerabilities in the financial system. While non-bank financial intermediaries, including hedge funds and private credit, have become crucial buyers of sovereign debt, their rapid growth, and new risks require close monitoring to prevent financial instability.
