The global trade and equity landscape is being reshaped by US President Donald Trump’s tariff push and the rapid growth of artificial intelligence (AI), according to Christopher Wood, Global Head of Equity Strategy at Jefferies. In a recent conversation with ET Now, Wood shared his views on India’s position in the shifting geopolitical order, the risks of Trump’s tariff strategy, and what is truly driving Wall Street’s rally.

India-US relations improving

Wood pointed out that the recent call between President Trump and Prime Minister Narendra Modi was more than a birthday greeting. It signaled Washington’s willingness to adopt a more conciliatory tone toward India after months of silence. “My guess is that we should get some resolution on this issue in the next few weeks and months,” Wood said. He added that the US would not want to push India closer to China at a time when trade frictions with Beijing are escalating.

Trump’s tariffs and global fallout

On Trump’s aggressive tariff moves, Wood said most economists believe the costs will ultimately fall on American consumers rather than exporters, despite Trump’s belief otherwise. “The longer these tariffs are in place, the more negative consequences will show up, both for American consumers and the global economy,” he noted.Wood gave the example of Japanese carmakers cutting prices by 15% to absorb tariffs, while Japan’s passive stance in trade talks has even triggered political fallout, including the resignation of its prime minister. By contrast, China has taken a hardline approach, using rare earth exports as leverage against US semiconductor restrictions.

India’s balancing act

When asked where India stands between Japan’s compliance and China’s resistance, Wood said India is “somewhere in the middle.” He highlighted that India’s cautious approach is working well so far, helping it maintain strategic independence while keeping channels open with both sides.

AI, not tariffs, driving US stocks

Despite trade tensions, the S&P 500 continues to climb. Wood explained that the rally has little to do with tariffs and everything to do with the “AI capex arms race.” Since Microsoft’s investment in OpenAI in early 2023, AI has become the dominant market theme. “The four hyperscaler stocks plus Nvidia have accounted for nearly 50% of the gains in the S&P 500,” he said.

Companies are now guiding massive AI-related capital expenditure, estimated at $350 billion this year alone, fueling optimism. But Wood cautioned that this may lead to an overinvestment bust, especially with open-source models like DeepSeek making large language models more commoditized. “The market has completely forgotten the lessons of DeepSeek,” he warned.

Risks of overheating

Wood emphasized that the US market is largely retail-driven, with many investors even relying on AI tools to decide trades. Valuations are at record highs, with the S&P 500 trading at an all-time high price-to-sales ratio. He suggested the rally could last as long as sentiment holds, but the eventual unwinding of AI capex could trigger a major correction.

Fed policy and the dollar

On US monetary policy, Wood said the Federal Reserve is prioritizing the labor market over inflation. He expects a 25-basis point cut, noting that the Fed is “fudging the inflation target.” This, he said, would weaken the dollar but support gold.

Wood also believes political pressure on Fed Chair Jerome Powell will intensify as Trump seeks lower borrowing costs to manage US debt servicing. “If they cut the federal funds rate by 250 basis points, that is going to materially reduce the cost,” he said, reflecting Trump’s push.

Big picture: AI and strategy

In conclusion, Wood argued that AI spending is the single biggest driver for US markets and global equities right now. But the risk of overspending looms large. “These hyperscalers are moving from asset-light to asset-heavy models,” he said. “It looks exciting now, but when this theme unwinds, there will be a big correction.