Bloomberg Chief Economist Tom Orlik: The White House Has Made a Strategic Bet on AI as a Growth Engine

A report by Bloomberg Economics shows that "foreign investors now favor riskier asset portfolios. Since 2024, when foreign investors buy US securities, they have increasingly favored stocks and corporate bonds rather than Treasuries. Inflows into these assets have reached near the highest level since data began being recorded, coinciding with the AI investment boom."

Tom Orlik, Bloomberg's global chief economist, said in an exclusive interview with Yicai: "Twenty years ago, surplus funds flowed back to US Treasuries mainly through sovereign foreign exchange reserves; today's returning funds are largely led by private capital, directly chasing equity-type risk assets including AI."

Orlik: The current situation has some important similarities with 2007-2008, and also one important difference.

The similarity lies in the reappearance of global macroeconomic imbalances. As in the early 2000s, major East Asian exporting economies accumulated huge trade surpluses and reallocated the dollar surpluses earned from exports back into US capital markets.

It cannot be denied that AI technology has epoch-making potential to drive a leap in total factor productivity, but technological revolutions have historically often followed fixed cyclical patterns—from the internet bubble of the 1990s to the railway investment frenzy of the 19th century, new technologies, before being converted on a large scale into productivity dividends, are usually accompanied by the inflation and bursting of valuation bubbles. Given that global private capital is deeply embedded in this round of the AI investment wave, once asset valuations undergo severe repricing, the market pain it spreads will also quickly spread to major capital markets around the world.

Yicai: In our recent visits to the Canton Fair, we found that despite tariff barriers, exports to the US of high-precision cables, industrial supporting equipment and special equipment powering North American AI data centers have continued to grow strongly. Can this export resilience withstand potential further increases in future trade policy?

Orlik: By reviewing the implementation logic of the existing US tariff lists, one can see that policymakers have shown considerable restraint on key materials involving the construction of domestic AI infrastructure. The White House has strategically bet on US AI as the core pillar of the growth engine and safeguarding competitiveness.

From the perspective of strategic coherence, artificially erecting barriers to the key hardware supply chain supporting the expansion of the domestic AI industry does not align with the US's own development goals. Broader tariff actions in the coming months are possible, but the probability of trade barriers directly imposed on the core supply of AI computing infrastructure remains low.

"The world has entered a new cycle of a higher central rate"

Yicai: In Bloomberg Economics' latest report, one very striking figure is the upward revision of the estimated natural real rate to about 2.6%. Does this mean that the rise in term premiums will be more persistent and evolve into a structural norm?

Orlik: When we discuss interest rates and their drivers, the market usually focuses on central bank actions—whether decisions by the Federal Reserve or the People's Bank of China. Central bank measures are certainly important, but the deep force driving interest rates is the structural balance between the supply of savings and the demand for investment. Looking back twenty years to the early part of this century, the world was in a phase of large savings surpluses and controlled sovereign debt, while the market lacked a new technology cycle capable of absorbing capital on a large scale. In a macroeconomic environment of excess savings and insufficient investment, the global central rate continued to move downward.

This underlying pattern has now undergone a fundamental reversal. Global savings supply has shrunk significantly, while investment demand is surging: geopolitical conflicts have pushed up the scale of government borrowing for national defense and security spending in various countries; the AI revolution has set off enormous capital expenditure demand in computing centers and supporting infrastructure. With insufficient savings supply and expanding investment demand, the endogenous pressure pushing up interest rates has strengthened significantly.

Central bank policy operations determine the short-term interest rate path, but at a deeper macroeconomic structural level, the world has entered a new cycle of a higher central rate.

Yicai: Does this mean that even if the Federal Reserve restarts rate cuts, the era of low interest rates below 3% has come to an end?

Orlik: That is exactly our baseline judgment.

Yicai: Has the recent self-tightening of financial markets effectively shared the tightening task with the Federal Reserve?

Orlik: The core variable determining the operation of the US real economy is not the federal funds rate itself, but the 10-year US Treasury yield. From household mortgages to corporate borrowing costs, all are anchored to the 10-year US Treasury. The 10-year US Treasury yield currently hovers near 5%, a sharp rise from previous levels.

This means that even if the Federal Reserve takes no additional action, the overall US financial environment has already tightened substantially on its own. Financing costs for the government, corporations and households have risen significantly, and financial markets are objectively performing the central bank's function, helping to curb potential inflationary demand.

Who is the real safe-haven asset

Yicai: Under the current multiple new changes, do US Treasuries still have safe-haven attributes? Where are the world's truly safe assets?

Orlik: The core pillars supporting US Treasuries as the world's ultimate safe asset still exist, but two deep variables underpinning that architecture have undergone major changes. Twenty years ago, US public debt as a share of gross domestic product (GDP) was less than 30%, the fiscal deficit was controllable, and controlling the debt deficit was a subject of serious debate between the two parties in Congress; today debt exceeds 100% of GDP, the deficit remains high, and in the midterm election debates in Congress, both parties remain silent on substantive deleveraging.

The structure of buy-side investors has likewise undergone a fundamental evolution. The core forces that once absorbed US Treasuries were foreign central banks during the period of foreign exchange reserve expansion, oil states with petrodollar surpluses, and the Federal Reserve implementing quantitative easing—all three types of institutions were long-term stable buyers. Today's dominant buyers have shifted to highly market-oriented private institutions pursuing risk-return hedging. Private capital is highly sensitive to spread changes and tail risks, causing asset price volatility to amplify significantly. The fundamentals supporting US Treasuries remain, but with debt high and no one proposing a reduction plan, and buyers shifting from highly stable official institutions to private investors more sensitive to risk and return, this is a rather challenging new combination for the United States.