Earlier this year, when US President Donald Trump announced his Liberation Day tariffs, stocks everywhere plunged. Many dropped by double digits in under a week and their freefall was only halted by his decision to suspend the tariffs for 90 days. On Wednesday, that 90-day period came to an end and a new set of tariffs was announced.

Unlike what happened in April, stocks this week continued their recent rise, up for the week, radiating outwards from the US to move markets elsewhere. European markets continued romping upwards and London’s FTSE 100 set an all-time record of nearly 9,000 on Thursday.

There’s both good and bad news in this for the UK Chancellor, Rachel Reeves. On one hand, the rally shows investors are still willing to put money to work in Britain, suggesting some confidence in her growth strategy ahead of the Autumn Budget. The bad news is that the City is still underperforming compared to its continental peers — better than France but weaker than Germany, Italy or Spain. This reveals continued jitters about the UK’s fiscal trajectory, which also shows up in the higher interest rates Britain must pay on its debt.

To call this rally during a trade war peculiar would be an understatement, though there may be some logic to it. Traders seem to be anticipating the positive effect on corporate earnings of a number of factors. First, fiscal loosening is back thanks to the US Congress’s recent passage of the “Big Beautiful Bill”, Germany’s ambitious spending programme and recent pledges by Nato countries to raise their defence expenditures. All of this will inject money into the economy in the short term.

There also seems to be continued faith in the transformative impact of AI and the consequent productivity boom. Yesterday, for example, Nvidia briefly became the first company ever to reach a $4 trillion market value. Perhaps most importantly of all, the idea of Taco trade (Trump Always Chickens Out) really seems to be sticking. Investors now seem to have decided that the President’s tariffs are all talk, something his repeated deferrals would seem to affirm. It’s not clear whether the recently-imposed tariffs are due to begin next month or in September, but the betting in markets is that the dates will just keep getting pushed off indefinitely, allowing markets to keep rallying.

Given the President’s notoriously mercurial character, it seems a lot to bank on. However, there’s something else going on which perhaps gets less attention but matters a lot, especially to markets outside the US. For all the continued talk stateside that American exceptionalism will keep driving the market up, the US is actually not the place to be just now. Germany’s Dax is up nearly 25% this year, Hong Kong’s Hang Seng by 20%, Johannesburg by more than 15% despite a flatlining economy, and London’s a more modest but still impressive 10%.

However, since Trump took office the S&P 500 has risen by only about 3%, far shy of the average annual increases of 9% over the last 15 years, let alone the 10% of the Biden years. In other words, what we’re seeing in the dollar, gold prices and bond markets is showing up in stocks too: global investors are rotating out of the US and going elsewhere.

That may change. The world’s turn away from the US may be temporary, and the attractions of investing in the world’s biggest economy may eventually overwhelm anxiety about the direction of American economic policy. But for now, it appears that any further uptick in American stocks will be surpassed by those elsewhere. America’s exceptionalism, in short, may no longer be seen as a virtue.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

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