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The writer is chief investment strategist at Charles Schwab
Most cycles produce their obituaries for American exceptionalism. In 2008, it was the collapse of Lehman Brothers and the apparent bankruptcy of the Anglo-Saxon model. A decade later it was China’s inexorable rise.
Today it is concerns about US deficits and debt and an elevated focus on global trade becoming less dollar-centric. And yet capital keeps arriving in New York, not departing from it. The persistence of this pattern deserves more scrutiny than the latest round of US decline narratives.
Start with the unglamorous but decisive matter of financial market plumbing. US equities account for roughly 60 per cent of global market capitalisation, and the Treasury market remains the closest thing the world has to a risk-free, infinitely liquid asset. This is not a trivial point. A sovereign wealth fund managing several hundred billion dollars cannot simply park that money wherever yields look attractive; it needs an asset class deep enough to enter and exit without moving the price against itself.
The Eurozone, for all its economic heft, offers a patchwork of national bond markets of varying credit quality. China’s market is large but walled off by capital controls that, however sensible from Beijing’s perspective, are precisely the sort of frictions that large pools of capital can generally avoid.
The dollar’s role compounds this. The currency continues to account for the majority of international trade invoicing globally and dominates foreign exchange turnover by a wide margin. This is less a vote of confidence in any particular US administration than a network effect: the dollar is useful because everyone else uses it, and that usefulness is self-perpetuating in a way that is genuinely difficult to dislodge.
There is also the rather old-fashioned matter of institutional credibility. Contracts are enforced. Courts are independent, most of the time. Accounting standards, whatever their flaws, are at least consistent and disclosed. This sounds like faint praise; but it is precisely the kind of faint praise that becomes conspicuous by its absence elsewhere.
If capital market depth explains why money sits in America, the innovation ecosystem explains why it keeps arriving. The familiar ingredients — world-class research universities, venture capital and private equity firms an order of magnitude larger than any rival’s, a cultural tolerance for failure that other systems struggle to replicate — have been given fresh relevance by the artificial intelligence boom.
Frontier AI labs are almost exclusively American: OpenAI, Anthropic, Google DeepMind, Meta’s research arm. Behind them sit the hyperscalers — Microsoft, Amazon, Google, Meta — whose combined capital expenditures on AI infrastructure now rival the GDP of midsized global economies. The dominant chip company Nvidia sits comfortably within the US corporate orbit despite its dependence on Taiwanese fabrication. None of this happened by central planning; it happened because capital, talent (including people educated abroad), and commercial incentive aligned in a way that other systems have found difficult to engineer.
None of this should be read as complacency. China’s progress in open-weight AI models has been faster than many anticipated, and its dominance of electric vehicle, battery and renewable energy supply chains represents structural strength that will matter for decades to come.
The EU, for its part, continues to discuss a capital markets union aimed at creating European pools of liquidity deep enough to reduce reliance on Wall Street — though “continues to discuss” is a key point, given the project’s history of national vetoes and bureaucratic drift.
The de-dollarisation debate also deserves to be taken seriously rather than dismissed with a wave of the hand. Sanctions on Russia accelerated quiet diversification among central banks, some of which have modestly increased gold reserves at the margin. But “modest” and “margin” remain the operative words. No alternative currency offers the combination of liquidity, convertibility, and legal certainty that the dollar provides, and that gap is not closing quickly.
Those strengths will be tested in the next decade against fiscal arithmetic, geopolitical fragmentation and the AI race itself. But an honest conclusion is that America’s centrality rests on a set of mutually reinforcing advantages: market depth, currency network effects, institutional trust and innovation capacity. They would all need to erode simultaneously for the system to tip. Individually, each advantage faces real pressure. Collectively, they have proved remarkably resilient to challenges that, taken one at a time, looked rather more threatening in prospect than they turned out to be in practice.
