[Source/Observer Network by Ruan Jiaqi]
On April 11, China again strongly countered by announcing it would increase tariffs on U.S. goods to 125%. After the escalation of trade war risks, the global economic turmoil triggered by Trump's tariff policies has become even more severe. In just one week, the chaos in U.S. policy has severely undermined decades of trust in the dollar as the world reserve currency.
"Confidence in U.S. assets has been shaken." Reuters reported on April 11 that after China introduced multiple rounds of countermeasures this week, although U.S. stocks eventually closed higher, safe-haven assets such as gold hit record highs during trading hours. Meanwhile, the dollar exchange rate fell, and selling pressure in the U.S. Treasury market intensified, all indicating a lack of confidence in the U.S. market.
According to The New York Times, on Friday, the dollar fell 0.9% against a basket of currencies from its main trading partners, reaching its lowest point against the Swiss franc in ten years and falling to its lowest level against the euro in over three years. This year, the dollar is performing its worst since 2017.
The report pointed out that the sudden loss of confidence in the dollar is most evident in the U.S. Treasury market. With offshore funds withdrawing en masse, the borrowing costs for long-term U.S. Treasury bonds saw their largest weekly increase since 1982. The volatility index of the U.S. Treasury market reached its highest level since October 2023, and the "safe haven" myth of the United States was shattered.
The New York Times emphasized that U.S. Treasury bonds, backed by the credit of the U.S. government, have long been considered one of the safest and most stable markets in the world. However, this week, the performance of the U.S. Treasury market was quite abnormal. Normally, during times of financial market instability, investors flock to U.S. Treasury bonds for safety, driving up bond prices and lowering yields. But this week, the opposite occurred.
"What we've seen since Trump's election is actually challenging the very foundation of the dollar as a reserve currency," analyzed Ray Attrill, head of foreign exchange strategy at National Australia Bank. "In almost no time at all, the United States seems to have lost its risk-free status."
He further stated, "To some extent, this is a loss of confidence... Moreover, the United States has lost its special status, and in the short term, the U.S. economy will be more affected by tariffs than any other country."
The White House responded on Friday, stating that U.S. Treasury Secretary Bassett is closely monitoring the direction of the bond market and has communicated with the White House.
Changes in U.S. 10-year and 30-year Treasury yields. The New York Times
The establishment of the Bretton Woods system in 1944 solidified the global status of the dollar. Post-war planners designed a system based on exchange rate stability and deepening international trade. Even after the collapse of the system in the early 1970s, the dollar remained dominant.
However, Trump's recent actions in trade have completely shaken people's perceptions of the dollar. Within just a few days, he imposed high tariffs on global goods, then suddenly changed his decision, while also intensifying the trade war with China. This has raised questions about the reliability of the U.S. government. As a result, global stock market valuations have evaporated by trillions of dollars, and the world market has fallen into chaos.
Martin Whetton, head of financial market strategy at Westpac Banking Corporation in Australia, pointed out that the significant changes in U.S. dollar swap spreads, the "rapid crash-like" rise in U.S. Treasury yields, and the massive sell-off of the dollar all indicate that the umbrella attribute of the dollar as a liquid and safe asset is being stripped away.
He added, "Damage or reduction in the credibility of the dollar as a financial safe haven will reduce the willingness of creditors to lend to the United States." Reuters noted that the U.S. now pays investors interest rates higher than those of Italy, Spain, and Greece.
Any weakening of the dollar as a safe-haven asset is certainly not good news for investors. Chris Wood, global equity strategist at Jefferies Investment Bank, stated in a report, "The Trump administration's agenda for reforming the international financial system appears to be largely unaware of the reality reflected by the U.S.'s extreme dependence on foreign capital as indicated by its net international investment position."
Foreign leaders are confused by the greatest shock to the world trading order in decades. The Trump administration, meanwhile, is busy promoting ongoing trade negotiations and claiming these negotiations justify its policy changes.
In response to the unreasonable initiation and escalation of tariff wars by the U.S., China again strongly countered on April 11, announcing it would raise tariffs on U.S. goods to 125%, and pointing out that given the current tariff levels, American goods imported to China have no market acceptance possibility. If the U.S. continues to impose additional tariffs on Chinese goods, China will not respond.
Reuters reported that this week, China launched multiple rounds of countermeasures, and due to the U.S.'s unpredictable and frequently changing policies, confidence in U.S. assets has been greatly shaken. The decline in U.S. 10-year Treasury bond prices, which best reflect U.S. asset sales, pushed yields to their highest point in two months, achieving the largest weekly increase since 2001, rising 0.5% in a week. The rise in 30-year U.S. Treasury yields also set a new record high.
By the end of 2024, foreign investors held $33 trillion worth of U.S. Treasuries and stocks. Analysts said that under normal circumstances, such a large U.S. Treasury market would not be significantly affected by changes in buying intentions, highlighting the severity of market volatility.
U.S. media outlets noted that these signs all indicate that despite Trump's "emergency brake" on global tariffs to ease pressure on the bond market, the market remains uneasy and lacks confidence in the U.S. economy. Investors continue to withdraw from U.S. assets.
"This is highly abnormal," Ajay Rajadhyaksha, chairman of global research at Barclays, wrote in a report on Friday. "For whatever reason, the bond market is currently in trouble."
Bhanu Baweja, chief strategist at UBS Investment Bank, also exclaimed, "This is terrible. We are redefining the global risk-free rate. If volatility is factored in, it will disrupt all markets."
The sharp fluctuations in the U.S. Treasury market also affect consumers. A survey of consumer confidence indices showed that concerns about inflation have climbed to their highest level since 1981. Moreover, contrary to previous survey results, the latest survey shows that confidence among supporters of Trump's Republican Party is also weakening.
Richard Yetsonga, chief economist at ANZ Bank Group, stated in a report, "No matter how the situation develops in the next 90 days, the U.S.'s international reputation has already been damaged. The global economic situation is more difficult than before the implementation of tariff policies." Henderson Group's forecast also believes that "the risk of an economic recession is much higher than it was a few weeks ago."
According to The New York Times, Federal Reserve officials have acknowledged the recent sharp market fluctuations but have not shown excessive concern. U.S. media mentioned that this market change recalls the Fed's swift intervention to stabilize the market after the sell-off caused by the pandemic in March 2020.
"But this time, the Fed's situation is more complicated," The New York Times pointed out. Although interest rate cuts provide greater support to financial markets and economic growth, the Fed has announced that it will continue to maintain existing high interest rates.
On April 4 local time, Federal Reserve Chairman Powell stated that considering the unexpected nature of Trump's tariff policies and the potentially "more persistent" impact on the economy and inflation, it is "premature" to adjust monetary policy at this time. The Fed will maintain an observant stance until the economic situation becomes clearer.
This means that the Fed may keep the benchmark interest rate around 4.3% for several more months and will not cut rates in the short term. Fed officials plan to meet again on May 6-7 to formulate interest rate policies.
This article is an exclusive piece from Observer Network and cannot be reprinted without permission.
Original source: https://www.toutiao.com/article/7492247927646077450/
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