"American Exceptionalism" Shaken by Tariffs: The Path of 'Risk Premium Expansion' Warned by Deutsche Bank

1. Introduction: The Collapse of the Illusion of "Exceptionalism"

“America is special.” This phrase, highlighting the strength of a superpower, has been the basis for the high stock prices on Wall Street and the global demand for the dollar. However, on June 3, 2025, Fortune magazine introduced a Deutsche Bank report stating that "American exceptionalism could become collateral damage of Trump's tariffs," causing ripples in the market.fortune.com

Jim Reid, the lead author of the report, asserted that "comprehensive tariffs undermine the myth of the safety of U.S. assets, significantly raising the risk premium demanded by investors." This indicates cracks in the foundation that has supported the ultra-high P/E ratios of major tech companies known as "Mag7."barrons.com

2. The "Double Whammy" of Tariffs: Dollar Depreciation and Rising Interest Rates

Deutsche Bank analyzed that the spread between the U.S. 10-year Treasury and the equivalent German bond (the so-called "Rule of Two") surpassed 3.5 percentage points this year, reaching levels not seen since 2009. This is because tariffs are raising inflation expectations, making the expansion of the fiscal deficit and increased issuance of government bonds unavoidable. Meanwhile, the dollar fell 7% against the euro in three months. Normally, a widening interest rate differential would lead to a stronger dollar, but investors are beginning to question the dollar as a "safe asset."thetimes.co.uk

3. How Wide Can the Spread Between Stocks and Corporate Bonds Get?

In late April, Deutsche Bank Credit Research estimated that the OAS (option-adjusted spread) of U.S. investment-grade corporate bonds exceeded the European average by 35 basis points, the widest gap since just after the IT bubble burst. Furthermore, Business Insider reported that "if Trump doubles tariffs, stocks and the world order could be in crisis."businessinsider.com
The market is beginning to factor in a negative spiral of "tariff shock → corporate profit pressure → deterioration of the corporate bond market → stock price decline."

4. How Did Japanese Social Media React?

On the afternoon of June 3, the trending section of X (formerly Twitter) included

• #The End of American Exceptionalism

• #Trump Tariff Shock

• #Dollar Depreciation Inflation
  . Below are summaries of actual observed posts.

＠kabusuki"U.S. 10-year bond yields surged from 3.1% to 3.6%, yet the dollar-yen went from 138 to 132 yen, contrary to the textbook, LOL."
＠macro_ayaka"Maintaining a 4% CPI due to tariffs is certain. The Fed is likely to hold rates steady this year rather than cut them."
＠sho_gadget"Apple's price pass-through limit = peak performance theory. Tailwind for Japanese companies!?"
＠logi_pro"Yen-denominated import costs are actually increasing. Domestic logistics are bound to see another price hike."

Retweets exceeded 120,000 in three hours. Among individual investors, there is a reassessment of the "U.S. stock concentration risk," while manufacturing users expressed concerns about rising costs and SCM restructuring.

5. Impact on Japanese Companies and Investors

1. Export Companies: Dollar depreciation is a factor in reducing yen-based sales. They want to diversify risks by increasing the forex hedge ratio and expanding sales channels outside North America.

2. Import-Based Business: The cost of "circumventing imports" to avoid tariffs is rising. Adding processing and assembly processes in Vietnam or Mexico is effective as a short-term measure.

3. Asset Management: Concentrated investment in the S&P500 requires rebalancing. Diversification into markets with undervalued valuations, such as the Euro Stoxx 50 or TOPIX Core 30, can enhance resistance to declines.barrons.com

6. Future Scenarios

7. Conclusion: The Day "Exceptional" Becomes an Ordinary Risk Asset

For many years, the U.S. has attracted capital as the "world's largest, safest, and most profitable" triple crown. However, if protectionism and fiscal deficits continue, that "privileged pass" will be stripped away. Japanese investors and companies should break free from the mindset of "U.S. only" and steer towards comprehensive risk management that incorporates exchange rates, interest rates, and geopolitics.

If the risk premium swelling behind the "exceptionalism" sign is overlooked, the true cost will eventually arrive as an invoice to Japan.

References: Fortune "Deutsche Bank says America’s exceptionalism is collateral of tariffs" (2025/6/3)fortune.com, Business Insider (2025/4/…)businessinsider.com, Barron’s (2025/2/19)barrons.com, The Times (2025/3/…)thetimes.co.uk, others.