Free trade causes a virtuous circle in the long run between world trade and world GDP. Trade boosts GDP, which in turn spurs trade; and so on. The new equilibrium of the virtuous circle is captured by the long run world trade multiplier – the ratio of the percentage change in world trade to the percentage change of world GDP. It measures the shift from the old to the new equilibrium.
Thank you John Mather.
If the new equilibrium turns out to have been worked out by Donald Trump and his associates, then I see little sign of it in a report in the FT this morning from Canada and Denmark, historically close to the USA.
It is not an article that needs repeating, if you want to read the whole terrible litany of Danish and Canadian pension funds calling off deals , then please use this free link or (it it has run out ) contact henry@agewage.com.
There is of course an imbalance between supply and demand that comes about because of maturity. Canada and Denmark have mature pension schemes because they have a balance between you and old because they have seen to funded pensions for generations. Which is why they are happy to invest in young companies and bring them on, this includes the USA. That is until now.
There are other countries that look investable and they will become more prominent because the USA is currently uninvestable, at least in the eyes of the consumers (the members) , their fiduciaries and ultimately the expression of the Governments (and this is circular).
An what is very clear is that Donald Trump cannot control the ownership of people (Denmark has benevolent control of Greenland, the world’s largest island). Canada seems to be considered “other states” of the united states, at least in the eyes of the bright eyed people in charge at the White House. But all of these views of the USA’s power cannot be seen through by will of mind and Canada and Denmark are making it clear what they think by the way they invest their pension portfolios
This is the reporting the FT gives to the expression of pension funds to what has happened since the arrival of Trump.
Some of the world’s biggest pension funds are halting or reassessing their private market investments into the US, saying they will not resume until the country stabilises after Donald Trump’s erratic policy blitz.
The moves underscore how big institutional investors are rethinking their exposure to the world’s largest economy as the US president’s trade policy upends markets, adding pressure to America’s private capital industry which is under increasing liquidity strain.
Some top Canadian funds are backing away from taking on more US private assets because of geopolitical concerns and fears they will lose tax breaks on their American investments. Canada Pension Plan Investment Board, which has C$699bn ($504bn) in assets, is among those considering its approach.
Meanwhile, one of Denmark’s biggest retirement funds has paused new investments in American private equity because of concerns over stability and Trump’s threats to take over Greenland, an executive at the fund told the Financial Times.
One of the earliest lessons I was taught as a newbie investment analyst was that when evaluating the soundness of investing in any obligation domiciled in a foreign country (no matter whether private or public sector) this required consideration of both the willingness and the ability of the obligor to pay.
It is necessary to consider the quality of the institutions in that country which will allow you to resolve disputes justly and predictably. Trump’s assaults on the US judicial system and indeed the checks and balances provided within the US constitution has destroyed any confidence in those institutions. It is particularly concerning that the Senate and Congress have shown little or no interest in resisting or rectifying the destruction wrought. The response of far too many law firms to attacks by Trump has been one of appeasement and is particularly disappointing
If this is not sufficient to raise concerns, investors would read the ‘Mar-a-Lago Accord’ – it is a proposed treatment of foreign investors that might be expected in a third world, impoverished country. For this even to be being discussed is a direct challenge to the willingness to pay.
If this all is not enough, the fiscal position combined with the effects of tariff chaos seen so far has raised the likelihood of a US Treasury inability to pay to something in the 6% – 10% range.
The pension funds quoted both seem to be acting prudently. The family offices that I advise sold their public securities shortly after Trump’s election and have fully hedged their quite substantial private, immobile holdings.
I don’t understand why an RPI plus on a 9 year investment is of no interest to U.K. but was snapped up by a Canadian very substantial fund.
I now have to create liquidity for the age 75+ members of a similar fund due to the IHT changes due to be effective in April 2027. The deal size is from £1M to £12M as the asset is in a SPV unitised fund.
Any U.K. funds out there who could follow the Canadian lead?
Mather.john@gmail.com