Markets Are Discovering the Real Trump Trade Is ‘Sell America’
The president’s attacks on the Fed are pushing the world further off its American axis, as governments and investors lose confidence in the US dollar and bonds.
By Saleha Mohsin and Carter Johnson
April 21, 2025 at 3:00 PM EDT
Two months into Donald Trump’s second term, the pillars of American financial hegemony — erected over the best part of a century — have rarely looked shakier.
Trump’s renewed tirades against the Federal Reserve, including the most explicit threats yet to fire Chair Jerome Powell, only amplified the shock waves from his declaration of trade war on pretty much everyone. It’s forcing a reappraisal of the assets fundamental to US economic dominance. The dollar and Treasury bonds, traditional havens at times of stress, suddenly look much less appealing. It’s not long since investors were anticipating a so-called Trump trade, essentially turbocharging US exceptionalism, but now it looks more like a sell-America trade.
And that’s just part of an even broader and likely painful shift. The role of US households as goods-buyers of last resort for the global economy, and the American military as linchpin of security and political alliances, are being called into question too.
Governments everywhere are in the same boat as money managers: struggling to reorient themselves. It’s a turbulent backdrop for the International Monetary Fund’s spring meetings, which this week brings global economy chiefs to Washington — for decades the pole of world order, and now the epicenter of disturbance.
“The geopolitical power structure is being reorganized under our eyes,” Jens Weidmann, the chairman of Commerzbank AG and previously the head of Germany's central bank, told a London audience last week. The “exorbitant privilege of the US,” he said — using a phrase coined in Europe more than half a century ago to describe the dominance of the dollar — “may not be carved in stone.”
Compounding the concerns, Trump is now escalating his war of words against the Fed, demanding immediate interest-rate cuts. Lawyers doubt he’s authorized to fire Powell. But the damage to investor confidence in the central bank’s independence — part of the bedrock appeal of US markets, along with a wider faith in the rule of law — may already be done.
“While we still treat a removal of the Fed's chair as a low-likelihood event, the live prospect of reduced Fed independence unlocks dollar risks too large to ignore,” Barclays strategists wrote in a Monday note downgrading their dollar forecast.
Of course the US is likely too big to topple too fast, but this month’s upheaval can’t be written off as an unintended side-effect. It’s true that Trump dialed back some tariffs in response to market squalls. But his administration explicitly wants radical change on all fronts — arguing that other countries have been freeloading off America’s currency, consumers and military.
The US long relied on the lure of its consumer-led economy and the greenback as the underpinnings of global finance and trade, and enjoyed what were widely seen as benefits. Trump and his team are focused on the perceived costs — including the loss of jobs and manufacturing industry, and large debts racked up to the rest of the world.
The US relies on capital inflows to finance its fiscal and trade deficits. Instead of money pouring into the country, it seemed to fly out immediately after April 2, when the president entered the White House’s
Foreigners own $19 trillion of US equities, $7 trillion of Treasuries and $5 trillion of US corporate bonds, accounting for about 20% to 30% of the total market, according to Torsten Slok of Apollo Management. The unwinding of those holdings could cause substantial pain.
“Consider the damage to America’s reputation by this sudden pivot to highly protectionist policies,” says David Kelly, chief global strategist at JPMorgan Asset Management in New York. The resulting loss of confidence in American policy “reduces the price people are willing to pay for US assets.”
At home, Trump’s tariffs have sent consumers and business into a funk – hammering the stocks of companies likely to face weaker demand, costlier inputs and foreign retaliation. The S&P 500 has tumbled almost 10% since April 2, wiping out roughly $4.8 trillion in market value.
A Bloomberg gauge of the greenback is down more than 7% this year, its worst annual start since the index’s 2005 launch. Most eye-catching, however, has been the slump in Treasuries, which — thanks to the backing of Uncle Sam — typically do well when other markets are being roiled, as on Sept. 11, 2001 and during the financial crisis.
This month has witnessed the biggest weekly surge in the yield on 10-year Treasuries — a benchmark that guides the rate of everything from mortgages to corporate borrowing — in more than two decades. Yields eased from a peak near 4.6% after Trump walked back some of his tariff plans — reportedly on concern about the bond rout — but they’ve been climbing again since his Fed-bashing gained steam.
That the dollar fell and yields rose was startling for some investors, given that the currency and borrowing costs are typically positively tied to each other. Instead, the relationship is now the weakest in around three years — suggesting a blanket aversion to US assets, and skepticism of typical risk hedges.
“The thing that’s been the most surprising has been that Treasuries and the dollar are not behaving in the safe haven role that we’ve seen before,” said Tracey Manzi, a senior investment strategist at Raymond James & Associates Inc. “Clearly the market as a whole has not absorbed the tariff news well.”
To be sure, history counsels caution. The US has punched holes in its own credibility before — when it shocked the world by abandoning the gold standard in 1971, or when its subprime mortgage collapse triggered a global crisis in 2008 — only to repair them.
What’s more, however much the financial world’s faith in the US has been shaken, it’s short of immediate alternatives.
European assets suddenly look somewhat more appealing, but nothing can match the depth and liquidity of the nearly-$29 trillion Treasury market.
The dollar is involved in some 90% of foreign-exchange trades and accounts for almost 60% of central bank reserves. It has no real competitor capable of filling any void: The euro still lacks the depth of debt instruments required of a reserve asset and perhaps still the political ties across its 20-strong membership, and China’s yuan is managed by its government.
For all these reasons, any so-called regime shift away from the dollar “could well hit its limits soon,” says Eswar Prasad, a professor at Cornell University and author of 2014's "The Dollar Trap."
“Rebuilding institutions and foreign investors’ trust in them will be a long and arduous process, if and when it starts,” he says. “But the US certainly has the luxury of not having any serious rival to its financial markets and currency.”
US officials are telling everyone to hang tight for the full effect of Trump’s economic agenda to set in. “Look at the whole policy,” Treasury Secretary Scott Bessent said on Bloomberg TV, noting that tax cuts and deregulation are on the way.
The world may not be willing to wait too long.
Trump has carried his brand of economic populism and its “America First” mantra through a decade, including his first presidency. Even so, the apparent ebbing of the US’s global leadership role, so early in his second stint in the White House, has come as a shock. And the backdrop has changed since his first term.
Under successive presidents, the US has sought leverage from its grip on global finance — an effort that peaked during the Biden administration with the economic sanctions imposed on Russia after its 2022 invasion of Ukraine. Many American allies joined in, but their campaign failed to halt Russia’s military advance.
Now Trump is reversing course on that conflict, seeking a peace deal that accommodates Russia and driving a sharp split with European nations who still want to back Ukraine financially and militarily. The fact that there’s a trade war under way at the same time has only enflamed the trans-Atlantic security crisis under way.
The Trump administration wants allies to pay up for the defense protection it provides, and it’s hinted that free access to the dollar and Treasuries shouldn’t be taken for granted either. The US has brought other countries under its security umbrella and issued reserve assets that facilitate trade and finance for everyone, senior White House economist Stephen Miran argued in a post this month.
“To continue providing these twin global public goods, there needs to be improved burden-sharing at the global level,” he wrote. “If other nations want to benefit from the US geopolitical and financial umbrella, then they need to pull their weight, and pay their fair share.”
In Asia, too, many countries are embedded in American-led security systems — and they’re also anxious about getting caught up in the crossfire of US-China tensions, since both are key trade partners.
Singapore’s Prime Minister Lawrence Wong declared after Trump’s tariffs were announced that the era of rules-based globalization and free trade is over. “We are entering a new phase – one that is more arbitrary, protectionist, and dangerous,” he said.
Trump aides suggest the US can settle its trade differences with allies first — and use the prospect of tariff relief for those countries as leverage to create a united front against China. But there are signs in both Europe and Asia that many governments have revived interest in reaching out to Beijing, rather than ganging up on it alongside Trump.
There’s renewed attention to foreign ownership of US public debt, too, and whether it can be deployed as a trade-war weapon. Some speculated, without hard evidence, that part of the recent decline of US bonds was in part driven by China and Japan winnowing their massive holdings, although data isn’t yet available and will be murky when it is.
All of this comes at a time when the US owes a lot of money. Its national debt held by the public is roughly $29 trillion, with budget deficits forecast by the Congressional Budget Office at $1.9 trillion in fiscal 2025. And its net international investment position — in effect, a snapshot of the US's financial obligations to other countries — stands at around $26 trillion.
The red ink indicates that the US may need the world’s credit as much as the world needs what the US has to offer. Looming battles among lawmakers over tax cuts and raising the nation’s debt limit risk jangling nerves further.
As investor sentiment shifts, America’s twin deficits in the budget and external account mean that “foreign policy will now influence US financial markets,” according to George Saravelos, global head of FX strategy at Deutsche Bank.
In this new environment, even episodes like Trump’s threat to annex Greenland – far removed from the kind of issues that market-watchers traditionally stress about – have the potential to do damage.
“It is an oft-repeated phrase that a twin deficit country is dependent on the ‘kindness of strangers,’” Saravelos wrote in an April note to clients. “This now applies to the US,” he wrote. “It will make the stability of US markets all the more dependent on non-confrontational foreign and economic policy to ensure their funding.”
— With assistance from Samy Adghirni, Philip Heijmans, Arno Schuetze, and Ben Westcott
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