LONDON — A historic global trade war, a proposed $1.2-trillion European fiscal bazooka, and the emergence of China as tech race leader are upending global flows of money, marking a potential turning point for investor capital away from the United States.

China unlocked more stimulus on Wednesday and promised greater efforts to cushion the impact of an escalating US trade war. Hours earlier, Germany’s likely next government agreed on the biggest overhaul to fiscal policy since the country’s reunification.

Meanwhile, US economic data points to a weakening, and the trade war unleashed by US tariffs that kicked in this week is hurting sentiment inside and outside the world’s biggest economy.

For most of the last three years, investors had bet on “US exceptionalism,” with the country ahead of others in economic growth, stock prices, artificial intelligence and other areas.

“The world now sees the US model is changing, and saying — we need to adapt to that, the US is no longer as reliable as a trade partner, we have to take care of our own needs on defense,” said Tim Graf, head of macro strategy for EMEA at State Street Global Markets.

The change in sentiment has fueled a rare divergence in global stock markets.

While the S&P 500 stock index is down 1.8% this year, European shares are up almost 9% at a record high, and tech stocks in Hong Kong have surged almost 30%.

The euro shot to a four-month high above $1.07 and a number of banks have raced to ditch their recent calls for a drop to parity against the dollar.

Investors have chopped their bullish bets on the dollar in half to around $16 billion since US President Donald Trump’s inauguration in January, based on weekly data from the Commodity Futures Trading Commission.

“Go back to December, this overwhelming consensus about US exceptionalism, and US was the only place to invest,” said Dario Perkins, managing director of global macro at TS Lombard, an economic consultancy.

“What’s really happened here is this threat of tariffs and the aggressiveness of Trump is forcing other countries to spend more.”

In his first 44 days in office, Mr. Trump has ripped up the playbook on foreign relations in place since 1945, launched a global trade war by slapping tariffs on his country’s largest trading partners and forced European leaders to drastically rethink how they fund their own security.

Tariffs and trade uncertainty are causing the US economy to lose steam, and companies more vulnerable to slower growth are starting to show the cracks.

Investors have poured money into Europe to diversify away from the US market.

SPENDING BIG
With Europe and China poised to spend big, the dollar is looking less appealing.

“We had been long the dollar against the euro and closed that position over a week ago. It had lost impetus,” said Mark Dowding, chief investment officer at RBC’s BlueBay fixed income team. “The behavior of Trump has diminished the appeal for US assets in general.”

After investors dumped Chinese assets last year, as the economy slowed and affluent consumers were closing their wallets, the government took several steps to encourage domestic spending. But many still viewed China as uninvestable in the absence of a jumbo stimulus plan as strains lingered from a real-estate bubble that burst, hitting companies and homeowners.

Almost uninterrupted outflows from China-focused funds after Mr. Trump’s election win in November reversed in early February, drawing in some $3 billion since then, according to Lipper data. 

One of the great US stock market draws has been its megacap tech shares. Nvidia, in particular, has become the poster-child of the artificial intelligence (AI) investment revolution and one of the world’s most valuable companies.

There was little evidence to suggest any serious challenge to the dominance of Wall Street in the AI arms race until late January, when a previously unknown low-cost Chinese AI model burst onto the scene.

The emergence of DeepSeek not only shattered assumptions about the cost and efficiency of the race to build out AI, but of how close behind Western companies China really was.

Hong Kong-listed tech stocks have roared 24% higher since January 27, while a basket of US tech megacaps has dropped 12%.

Yang Tingwu, vice general manager of asset manager Tongheng Investment, said China’s stock market is already immune to higher US tariffs as the country’s growing strength is underpinning domestic assets.

“If you look at TikTok, Xiaohongshu or DeepSeek, China’s technological clout is expanding,” Mr. Yang  said.

American users have been rapidly moving to Xiaohongshu, a Chinese social media platform known as RedNote in English, in response to the impending sale of rival TikTok’s US operations.

Still, for some, a resilient US economy and relatively higher interest rates will see the dollar retain its appeal over time.

“I do think there is a shift in play, we view it as a tactical versus a big secular shift,” said Nate Thooft, CIO for Multi-Asset Solutions and Global Equities at Manulife Investment Management. He has recently upgraded a maximum underweight on European equities to neutral. — Reuters

WASHINGTON — President Donald Trump is expected to issue an executive order aimed at his long-held goal of abolishing the US Department of Education, the Wall Street Journal (WSJ) reported on Wednesday.

The order may come as soon as Thursday, the newspaper said, citing people familiar with the matter whom it did not name. The White House and the department did not immediately respond to requests for comment late on Wednesday.

Mr. Trump has repeatedly called for eliminating the department, calling it a “big con job.” He proposed shuttering it in his first term as president, but Congress did not act.

His fellow Republicans have long sought to chip away at its funding and influence, and his education secretary, Linda McMahon, who was confirmed by the Senate on Monday, has defended Mr. Trump’s plan to abolish the agency.

The department’s defenders say it is crucial to keeping public education standards high and accuse Republicans of trying to push for-profit education. An immediate closure could disrupt tens of billions of dollars in aid to K-12 schools and tuition assistance for college students.

Mr. Trump said last month he wanted the department to be closed immediately but acknowledged he would need buy-ins from Congress, which determines its funding, and teachers’ unions.

Ms. McMahon told senators that unwinding the department would require congressional action and repeatedly promised the federal school funding appropriated by Congress to assist low-income school districts and students would continue.

Mr. Trump and his billionaire adviser Elon Musk have attempted to dismantle government programs and institutions such as the US Agency for International Development without congressional approval, but abolishing the Department of Education would be his first shutdown of a cabinet-level agency.

The department oversees some 100,000 public and 34,000 private schools in the United States, although more than 85% of public school funding comes from state and local governments.

Instead, it provides federal grants for needy schools and programs, including money to pay teachers of children with special needs, fund arts programs and replace outdated infrastructure.

It also oversees the $1.6 trillion in student loans held by tens of millions of Americans who cannot afford to pay for university outright.

Under Trump’s Democratic predecessor, Joseph Biden, Republicans particularly criticized the department over student loan forgiveness and policies related to diversity, equity and inclusion programs. — Reuters

POCHEON, South Korea — Fifteen people were injured in South Korea on Thursday after bombs dropped by fighter jets landed in a civilian district, damaging houses and a church during military exercises in Pocheon, the Air Force and the fire department said.

The Gyeonggi-do Bukbu Fire Services said in a statement that 15 people were wounded, out of which two were seriously hurt.

Pocheon is about 40 kilometers (25 miles) northeast of Seoul, near the heavily militarized border with North Korea.

South Korea’s Air Force said eight 500-pound (225 kg) Mk82 bombs from KF-16 jets fell outside the shooting range during joint live-fire exercises.

“We are sorry for the damage caused by the abnormal drop accident, and we wish the injured a speedy recovery,” the Air Force said in a statement.

The accident was due to a pilot entering incorrect coordinates, said a military official who declined to be identified because of the sensitivity of the matter. The official said that the two jets then dropped four bombs each, with all of them detonating.

Authorities would suspend live-fire exercises until there was clear understanding of what went wrong, but the incident would not affect major joint South Korean and US military exercises due to begin on Monday, the official said.

Residents in the area have protested about the disturbance and potential danger from nearby training grounds for years.

Photographs from the scene showed a house hollowed out by the impact, shattered windows and a church building strewn with debris.

Security camera footage aired on local TV also caught the moments before and up to the incident, with a pickup truck driving on a tree-lined street before the area is consumed by a large explosion.

“The unthinkable has happened,” said Pocheon city mayor Baeck Young-hyeun, who urged the government and military to come up with measures to prevent any further civilian damage.

The defense ministry said earlier on Thursday that South Korea and US forces were holding their first joint live-fire exercises in Pocheon, linked to annual military drills due to start next week.

The Freedom Shield joint drills, which will run from March 10 to 20, aim to strengthen the readiness of the alliance for threats such as North Korea, the Seoul’s Joint Chiefs of Staff (JCS) said before the accident.

This year’s drills will reflect “lessons learned from recent armed conflicts” and North Korea’s growing partnership with Russia, it added.

“Our planners look across the globe and identify the trends that are changing and we look at how we can incorporate that into our exercises,” Ryan Donald, a spokesperson for the United States Forces Korea (USFK), told a media briefing on Thursday.

About 70 combined field training sessions are scheduled for this year’s exercise, said Lee Sung-jun, a spokesperson for Seoul’s JCS. — Reuters