Is the US Starting to Look More Like an Emerging Market?

It’s not a sentence I say lightly, but I think it needs to be said clearly. Right now, from an investor’s point of view, the United States looks a lot more like an emerging market than a developed one.

When people talk about Emerging Markets (EM), they usually don’t mean growth or GDP per capita. What they really mean is rule-of-law risk, the idea that the outcome of an investment depends just as much on politics and institutions as it does on the fundamental economics of a country.

Take China. It’s the world’s second biggest economy, but still classed as EM by many, because investing there means thinking about capital controls, policy shifts, or sudden regulatory crackdowns.

We saw the same in Russia in 2022. When sanctions hit, bondholders didn’t just lose access to cashflows, they were stuck with compliance problems, frozen assets, and legal chaos. These aren’t isolated incidents. They’re reminders that politics matters more in EMs. You’re forced to think about how power works and where the real risks sit.

What’s Happening in the US?

Investing in the US right now isn’t just about earnings, rates, or cashflows. It’s about politics. And that’s a big change.

The Biden administration rolled out major clean energy incentives. Then came the One Big Beautiful Bill (OBB), and now those investments are in limbo. What survives could depend on who’s in charge next. That kind of uncertainty isn’t just annoying, it changes how capital gets distributed.

Meanwhile, trade policy is swinging all over the place. Tariffs rise and fall depending on headlines. Supply chains that took years to build are now getting redesigned because no one knows what the rules will be 12 months from now. There was even a recent scare that withholding tax rules might change for US Treasuries, not because of new policy, but because of how Section 899 was interpreted.

Then there’s what’s happening the markets. Certain stocks now move based on whether the CEO is in favour with the White House. Insider trades near policy announcements are raising concerns. And we’re seeing real money bet on the idea that political connections can drive returns, like GRFT, an ETF tied to the Trump inner circle. These are not signs of a healthy, rules-based investment climate. They’re signs of a political economy creeping into markets, the very thing that defines EM investing.

What Does This Mean for Credit Investors?

Let’s be honest, all of this makes the US a harder place to invest. Not just for equity allocators, but for credit investors too.

First, because if policy is picking winners and losers, your process has to adjust. You can’t just look at the fundamentals. You need to understand the politics.

Second, over time, when political activity begins to shape investments, you get worse capital allocation. That tends to mean slower growth and higher inflation, a bad combo for long-duration credit.

But here’s the thing. Spreads haven’t really moved. Why? Because US investment-grade credit ($-IG) is complicated, to say the least. Any risk premium that builds may show up elsewhere, in a weaker dollar, in wider Treasury asset swaps, or in higher outright yields. But not necessarily in credit spreads themselves.

In fact, some people argue that the convergence between corporate and government risk is already underway. Apple or Microsoft now look less different from the US Treasury than they used to, at least in how markets think about credit quality.

Why It Still Matters

None of this means a crash is coming. But it does mean we should think twice about what’s driving returns. Since 2022, US credit has benefited from strong demand, high relative yields, and a resilient economy. But all of that is starting to slow down.

For global portfolios, the case for US over European IG is weaker than it was. And in a world where political risk matters more, the rules we’ve relied on to price credit may start to feel out of date.

Opinions Aside, What Does Cordoba Capital Think?

So, here’s our view: the second Trump term marks the beginning of the end for US exceptionalism.

Not because of one decision or even one administration, but because politics now happens to be a big part of how markets behave. The line between business and government is thinner than it used to be. The rules are changing faster. And for foreign investors, it’s getting harder to feel confident in the system.

This won’t flip overnight. But over time, it distorts how capital gets allocated, how companies plan, and how risk is priced. It’s a slow transition, but one that matters.

Just to reiterate. We are not sounding the alarms, but we are in a moment where the old privileges the US enjoyed, the trust, the depth, the default reserve role, don’t feel quite as guaranteed. You could say the exorbitant privilege isn’t what it used to be. The Triffin Dilemma always warned that the very thing that gave the US its dominance could also weaken it. Maybe we’re seeing the start of that trade-off playing out in real time.

Yields may stay high. The dollar might keep weakening. And the idea of the US as the automatic “safe” place to park capital, that could keep eroding, slowly but surely.