The real Trump 2.0 deal: Sell off America!

Two months have passed since Trump's second term, and the financial hegemony that the United States has gradually established over nearly a century has never been as precarious as it is today.

Bloomberg News analysis states that Trump's attacks on the Federal Reserve are pushing the world further away from the U.S.-led track, as governments and investors are losing confidence in the dollar and U.S. Treasury bonds.

The "Trump Trade" is actually "Selling America"

Trump's recent fierce criticism of the Federal Reserve, particularly his most explicit threat to fire Chairman Jerome Powell to date, has intensified the shocks caused by his trade wars with almost all countries. This has prompted a reassessment of the key assets that support the dominance of the U.S. economy. The dollar and U.S. Treasury bonds, which were traditionally seen as "safe havens" during times of crisis, have suddenly become less attractive. Not long ago, investors were looking forward to the so-called "Trump Trade," essentially an accelerated speculation on "American exceptionalism," but now it resembles more of a "Sell America Trade."

This is just part of a broader and potentially more painful transformation. The role of American households as the "last buyers" in the global economy is now also being questioned.

Governments and asset managers around the world find themselves in the same predicament: struggling to adapt to the new reality. "The global geopolitical power structure is being reshaped before our eyes," said Jens Weidmann, chairman of Deutsche Bank and former president of the German central bank, last week. He stated that America's "excessive privilege"—a term created in Europe over half a century ago to describe the dominance of the dollar—"is not set in stone."

Complicating matters further, Trump is currently escalating his war of words with the Federal Reserve, demanding immediate interest rate cuts. Although legally Trump may not have the authority to fire Powell, the damage to investor confidence has already been done— the independence of the Federal Reserve, as part of the fundamental appeal of the U.S. market, along with broader trust in the rule of law, is being eroded.

Barclays strategists wrote in a report on Monday that downgraded their dollar outlook:

"While we still believe the likelihood of removing the Federal Reserve chairman is low, the reality of declining Fed independence brings undeniable risks to the dollar."

Enjoying the benefits of dollar hegemony without wanting to pay the price

Of course, the size of the U.S. economy makes a rapid collapse unlikely, but the turmoil this month cannot simply be seen as an unexpected side effect. Indeed, Trump has rolled back some tariff plans after market turmoil, but his administration has clearly expressed a desire to push for radical changes in all aspects—arguing that other countries have been taking advantage of America's currency and consumers.

For a long time, the U.S. has relied on a consumer-driven economy and the appeal of the dollar as the pillars of the global financial and trade system, enjoying various benefits widely regarded as such. Meanwhile, Trump and his team focus on the "costs" brought by these systems—including job losses and the decline of manufacturing, as well as the massive debts accumulated abroad.

The U.S. relies on capital inflows to finance its fiscal and trade deficits. However, since April 2, the situation seems to have changed dramatically. On April 2, local time, the White House issued a statement saying that Trump would impose a 10% "baseline tariff" on all countries From that moment on, capital no longer flowed into the United States; instead, it seemed to be fleeing rapidly.

According to estimates by Torsten Slok of Apollo Management, foreign investors hold U.S. assets including $19 trillion in U.S. stocks, $7 trillion in U.S. Treasury bonds, and $5 trillion in corporate bonds, accounting for 20% to 30% of the overall U.S. market. If these assets begin to be sold off, the consequences will be enormous.

David Kelly, Chief Global Strategist at JPMorgan Asset Management in New York, said,

"Think about the damage this sudden shift to highly protectionist policies does to America's reputation, the resulting loss of confidence in U.S. policy, which lowers the price people are willing to pay for U.S. assets."

Stock, Bond, and Currency Triple Whammy, Market Avoids U.S. Assets

In the U.S., Trump's tariff policies have left consumers and businesses in a slump, with companies facing weakened demand, rising costs, and overseas retaliation seeing their stock prices hit hard. Since April 2, the S&P 500 index has fallen nearly 10%, with a market value evaporating by about $4.8 trillion.

The Bloomberg Dollar Index has fallen more than 7% year-to-date, marking the worst annual start for the index since its inception in 2005. The most striking change has been the plummet in the U.S. Treasury bond market. U.S. Treasuries, backed by the federal government, typically serve as a "safe haven" during turmoil in other markets.

However, this month, the yield on the 10-year U.S. Treasury bond saw its largest weekly increase in over 20 years. As an important benchmark for measuring financing costs from mortgages to corporate borrowing, the yield briefly approached 4.6%. Although the yield retreated after Trump scaled back some tariff plans—reportedly due to concerns over a bond market collapse—it has climbed again since he intensified his attacks on the Federal Reserve.

The decline of the dollar alongside rising Treasury yields has shocked some investors, as typically, the dollar is positively correlated with borrowing costs. However, this relationship has now fallen to its weakest level in nearly three years—indicating a general market avoidance of U.S. assets and skepticism towards traditional safe-haven tools.

Tracey Manzi, Senior Investment Strategist at Raymond James & Associates Inc., stated.

"The most surprising thing is that U.S. Treasuries and the dollar no longer serve as safe havens as they used to. Clearly, the entire market is not reacting well to the tariff news."

U.S. Credit Damaged, but Dollar Cannot Be Replaced in the Short Term

The U.S. has previously damaged its own credit multiple times—for example, the sudden abandonment of the gold standard in 1971 shocked the world, or during the 2008 subprime crisis that triggered global financial turmoil—but ultimately, it has managed to repair its credit Nevertheless, current confidence in the U.S. financial sector has been severely damaged, but there is also a lack of viable alternative options in the market right now.

European assets seem to have slightly increased in attractiveness, but they still cannot compare to the depth and liquidity of the nearly $29 trillion U.S. Treasury market.

The U.S. dollar is involved in about 90% of foreign exchange transactions and accounts for nearly 60% of central bank reserves worldwide. It still has no real competitors globally: the euro still lacks the depth of debt instruments required for reserve assets and may not have established sufficiently strong political ties among the G20 members.

For these reasons, any so-called institutional shift towards "de-dollarization" "may soon reach its limits," said Eswar Prasad, a professor at Cornell University and author of The Dollar Trap.

"Rebuilding the institutional framework and restoring foreign investors' trust in these institutions will be a long and arduous task—if this task is indeed to be undertaken. However, the fortunate thing for the U.S. is that currently no country has enough strength to truly replace it in financial markets and currency."

U.S. officials are calling for patience from the outside world as the full effects of the Trump economic agenda are implemented. "We need to see the complete set of policies," U.S. Treasury Secretary Scott Bessent said on Bloomberg Television, noting that tax cuts and deregulation measures are about to be rolled out.

But this world may not be able to wait too long.

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