President Trump's tariff war could cost the US economy around $31bn a month as foreign investors keep their money at home, according to new research by the University of Sussex and Brunel University of London.
Analysis of cross border investments has found geopolitical shocks, including the first US tariffs on China back in 2018, have led to falls in overseas investments in American equities in a phenomenon dubbed the "flight home". The research warns the US is uniquely vulnerable to this fallback because its economy relies on a long-held surplus in international investments which is now in jeopardy.
The study reports that losses could amount to at least $31 billion in monthly foreign equity investment on average for the next two years if the trade war continues. This prediction is based on the impact of this year's first raft of tariffs in April 2025 and analysis of how similar shocks have affected cross-border investments. The figure takes into account the fact that President Trump paused those tariff policies in the spring, and predicted losses would have been otherwise significantly higher. Today's warning comes at a time when the US administration continues to switch between pushing tariffs and trade deals.
The research was conducted by Dr Faek Menla Ali, University of Sussex and Professor Guglielmo Maria Caporale, Brunel University of London.
Dr Faek Menla Ali, University of Sussex economist, comments:
"Donald Trump's tariffs are all about trying to cut the country's trade deficit, but any gains made here are likely to be wiped out by losses in international investments in the short-to-medium term. The obsession with exports has led to a blind spot over how deeply the US relies on investments from other countries. American bonds and equities have been seen as a safe haven for the entire post-war era. Trump's second term is undermining one of the country's strongest economic legacies."
Recent data shows that US gross equity inflows from equities purchased by foreign residents were close to $750bn in 2023 but the research suggests this will fall fast if tariffs continue. As an example the study found that average monthly gross equity flows from China to the US for the six months after the 2018 tariffs was $-0.228bn compared to the six months before the tariffs of $0.721bn. That's a fall of around 129%. The same pattern was seen from other countries, with geopolitical shocks causing investors to put more of their money into domestic assets instead of US assets.
Dr Menla Ali said: "One of the most puzzling things about the US tariff project is that it ignores basic economic realities. For decades, the country's surplus in international investments has funded its trade deficit. In short, they balance each other out. Attempting to cut the trade deficit by doing something which harms investments in American assets is nonsensical. It's a lot of wasted political capital for no real economic wins."
