Is the Sell America Trade Real? Here's What the Charts Show

Key Concepts

• AIPA (American International Petroleum Act of 1970s): A law used by the Trump administration to justify tariffs, recently struck down by the Supreme Court.
• Sell America Trade: A market reaction characterized by capital outflow from the US dollar, stocks, and bonds, typically triggered by trade policy uncertainty.
• World Trade Policy Uncertainty Index: An index created by Federal Reserve economists tracking uncertainty related to trade policy, using news reports and other indicators.
• PMI (Purchasing Managers' Index): An economic indicator of the manufacturing or service sector’s economic activity.
• Basis Points: A unit of measurement used in finance to describe the percentage change in an interest rate or yield (1 basis point = 0.01%).
• Sanctions-Busting Oil: Oil acquired from countries under sanctions, like Iran, often at a discounted price.
• Shadow Fleet Tankers: Vessels used to transport oil while circumventing sanctions.

Trade Policy Uncertainty and Market Reactions

The week began with a resurgence of the “sell America” trade following the Supreme Court’s ruling against the Trump administration’s use of the American International Petroleum Act (AIPA) to justify broad tariffs. This decision has reintroduced uncertainty regarding US trade policy, mirroring the market dynamics observed in April of last year when “liberation day tariffs” were initially imposed. Initially, this uncertainty manifested as a decline in the S&P 500 and a weakening of the US dollar index, which gapped down at the start of the week. The dollar’s decline is notable as it typically functions as a safe-haven asset during market stress, suggesting capital is exiting US markets due to trade policy concerns.

Volatility in Trade Policy Uncertainty

The World Trade Policy Uncertainty Index, compiled by Federal Reserve economists, reveals significant volatility since the beginning of 2025. While uncertainty has decreased from its peak in April of last year following the initial tariffs, the fluctuations in the 7-day and 30-day moving averages have been remarkably high. This volatility surpasses even levels seen during the onset of COVID-19 restrictions, when global supply chains were severely disrupted. This sustained uncertainty is demonstrably impacting global trade volumes, with 2023 marking the first decline in global trade since the pandemic.

AI Supply Chain Vulnerability

The current trade uncertainty poses a particular risk to markets driven by the expectation of a transformative AI rollout. The AI supply chain, while heavily concentrated in North America (38%, including companies like OpenAI and Anthropic), is globally integrated with significant components in Europe and Asia. Many parts of this supply chain represent single points of failure, making it vulnerable to disruptions caused by trade restrictions. “The narrative that’s underpinning the performance of the stock market and of sentiment more generally is directly threatened because that narrative needs for there to be frictionless global trade in order for any of it to work.”

Diverging Market Signals: Recession Fears vs. Sell America

While the initial reaction resembled the “sell America” dynamic seen last year (capital outflow from dollar, stocks, and bonds), the current market response is diverging. Instead of a broad sell-off, bonds are surging higher, potentially indicating growing fears of a recession. This shift coincides with the release of unexpectedly weak US economic data on Friday. US GDP grew by only 1.4% annualized in the fourth quarter, significantly below the expected 3% and down from 4.4% in the third quarter.

Furthermore, S&P Global PMI data, a leading indicator of economic activity, fell to 52.3 in February, marking the slowest pace of private sector expansion since April 2025. Manufacturing activity hit a seven-month low, and service sector activity reached a ten-month low. These figures suggest that the market is now pricing in approximately 50-54 basis points of rate cuts this year, equivalent to at least two standard 25 basis point cuts.

Inflationary Pressures and the Fed’s Dilemma

However, the prospect of rate cuts is complicated by rising crude oil prices. Fears of potential conflict between the US and Iran, and the potential disruption of Iranian oil supplies (particularly to China), are driving up oil prices. The potential collapse of the Iranian regime, even without direct US intervention, threatens China’s access to discounted, sanctions-busting oil, further exacerbating supply concerns. The US is also actively targeting Russian shadow fleet tankers, further constricting oil supply. This rising oil price introduces inflationary pressures, potentially hindering the Federal Reserve’s ability to cut rates. The situation presents a dilemma: markets desire rate cuts to support growth, but the Fed may be constrained by inflationary concerns.

Risk Asset Exodus and Bitcoin’s Decline

This complex interplay of factors has led to a broad exodus from risky assets. While gold has risen, Bitcoin has experienced a sharp decline, indicating a flight to traditional safe-haven assets rather than cryptocurrencies. This suggests a heightened level of risk aversion in the market.

Conclusion

The current market environment is characterized by a confluence of uncertainties: trade policy, weakening economic data, and geopolitical tensions. While the initial reaction mirrored the “sell America” trade, the market is now increasingly focused on recessionary fears, driving up bond prices and prompting expectations of rate cuts. However, rising oil prices and potential inflationary pressures complicate the Fed’s policy options. The situation remains fluid and requires careful monitoring, as the interplay between these factors will ultimately determine the direction of markets.