The United States, under the leadership of Donald Trump, is increasingly resembling an emerging market, particularly in light of the recent tariff chaos and its far-reaching consequences. This perspective, which I first proposed last October, highlights how emerging markets are typically marked by unstable economies, political corruption, weak institutional frameworks that struggle to uphold democratic principles, and societal divisions. Since 2016, the U.S. has been accelerating toward this paradigm, influenced by well-documented factors, even as asset prices and borrowing rates seemed largely unaffected until recent developments.

Historically, between 2016 and 2024, U.S. equities and the strength of the dollar often surged during periods of political and economic uncertainty, a phenomenon attributed to the dollar's status as a global safe haven. This resilience gave the illusion that the U.S. economy was impervious to the kinds of catastrophic scenarios that could lead to a significant decline in the value of the dollar and U.S. assets.

However, under Trumps unorthodox and unpredictable leadership style, likened to a reckless driver who yanks the steering wheel to provoke chaos, the stability of the U.S. currency and equity markets is now at risk. This precarious situation mirrors what occurs in other nations with similarly turbulent political climates that inevitably face economic repercussions.

Mark Rosenberg, founder and co-head of research at GeoQuant, noted a concerning trend: We now see strong, emerging market-level negative correlations between political risk and both the USD and S&P 500. This observation underscores a reality that many in the business and investment community seem reluctant to accept. Rather than focusing solely on potential tax reductions and deregulation that might come with Trumps expected second term, CEOs should be recognizing the broader instability and significant shifts in economic paradigms that his presidency is ushering in.

Trumps behavior as a leader has certainly echoed many characteristics typical of emerging markets. For instance, his tendency to surround himself with advisors chosen primarily for their unwavering loyalty is reminiscent of the cult of personality that often dictates outcomes in such political systems. When governance becomes centered around a singular figure, the ramifications for economic stability and institutional integrity can be severe, as decisions often rest solely on that leaders whims.

Rosenberg highlights that Trumps election can be interpreted as a manifestation of the emerging market-like trends in social and institutional resilience that have been on the rise in the U.S. since 2017. It was not merely the election itself but also the subsequent threats of economic warfare against both allies and adversaries that shifted perceptions of risk. Take, for example, U.S. Trade Representative Jamieson Greer, who found himself in Congress defending tariffs while Trump simultaneously granted a 90-day reprieve to various countries, creating an impression of disarray within the administration.

Before recent events, equity markets seemed to suggest that Trump maintained some level of control over the situation he had instigated. Following his social media post declaring it a great time to buy stocks, markets responded positively. This kind of market behavior is not unlike that observed in emerging markets. In 2008, for instance, remarks from Russias then-Prime Minister Vladimir Putin regarding a coal and steel oligarch resulted in an immediate loss of $6 billion in market value for the company. Similarly, in Turkey, significant fluctuations in the lira and other assets are often triggered by President Recep Tayyip Erdoans public statements.

Yet, the bond market presents a stark contrast to the equity markets, clearly signaling a loss of confidence. Despite the Trump bump that stocks experienced post-election, bond yields have remained elevated, illustrating that borrowing costs are not decreasing, and political risk shows no signs of abating. In fact, the recent sell-off in bonds during last weeks equity market downturn suggests that investors are either liquidating safer assets to cover losses elsewhere, or they have simply lost faith in the U.S. financial system and its trajectory.

Last week might mark a pivotal moment in what could be perceived as the erosion of American economic exceptionalism. Stphane Boujnah, CEO of Euronext, expressed this sentiment succinctly on France Inter radio: The country [United States] is unrecognizable, and we are living in a transition period. There is a certain form of mourning because the United States we had known as a dominant nation resembled the values and institutions of Europe and now resembles more an emerging market.

This transformation appears inevitable under Trump, regardless of the outcomes of tariff negotiations. Even in a scenario where China concedes and cooperates with the president (which seems unlikely), or if we only experience moderate changes to the global trading framework, the damage inflicted on trust and stability is already profound. Wall Street and Main Street alike are on edge, and such anxiety is likely to reshape behaviors moving forward.

The unpredictable nature of what can be termed 'Caligula capitalism' is likely to persist at least until the midterm elections. Personally, I am planning to remain in cash and gold during this tumultuous period. However, the repercussions of this erratic economic governance will resonate far beyond the immediate future, particularly as the impending Trump tax cuts create an unsustainable debt landscape. The possibility of the United States becoming the epicenter of a debt crisis akin to those seen in emerging markets was once unfathomable to me; now, it is an alarming prospect that cannot be dismissed.

For further insights or to share your thoughts, please reach out via email at rana.foroohar@ft.com.