Most Americans never think about their country’s currency. They don’t have to. The US dollar (DX=F) has been a global benchmark for decades, conferring unique advantages to those lucky enough to live in its ecosystem.
Yet as President Trump disrupts everything and anything, the once sacrosanct US dollar is looking like an unintended victim. If so, that means millions of Americans could end up losing privileges such as lower-than-average interest rates, stability long taken for granted, and an economy that everybody once wanted to be a part of.
The trouble started — get ready for it — with Trump’s tariffs. The tariff playbook changes nearly every day, but it seems to have settled into a giant trade war with China and lesser skirmishes with the rest of the world. The war now entails enormous 145% tariffs on most Chinese goods, along with 25% tariffs on imported cars, car parts, steel, and aluminum. There’s also a new “baseline” tariff of 10% on most imports not covered by those other tariffs. China has retaliated with a 125% tariff on imports from the United States and other limits on American goods.
Overall, the average import tax on $3 trillion worth of imported goods will soar from 2.5% when Trump took office to about 27%, according to the Yale Budget Lab. Trump’s China tariffs will massively raise costs for some American businesses and prices for hundreds of everyday products.
Those added costs for businesses and consumers will damage corporate profits, push inflation higher, and possibly cause a recession with rising unemployment. That’s why there’s been a huge stock sell-off as investors try to price in falling corporate profits and the economic damage of a downturn or recession.
But something worse has been happening. Global investors seem to be dumping all US assets denominated in dollars and moving their money to other parts of the world or to gold. That’s showing up in some peculiar and potentially alarming market developments.
When stocks fall, investors normally put more money into safer bonds, especially US Treasury securities. When demand for Treasuries rises, the price does too, and the interest rates fall since borrowers issuing bonds can pay a lower return when demand for bonds gets stronger.
What has started happening in the Trump sell-off is that stocks are falling, but long-term interest rates, which would normally fall, have been rising instead. Since April 2, for instance, the S&P 500 (^GSPC) stock index has fallen about 5.5%. During the same time, the rate on the benchmark 10-year Treasury bond (^TNX) rose by three-tenths of a percentage point. That might sound like a small change, but amid a “flight to safety,” with investors seeking safe havens for their money, it’s anything but.
The dollar, meanwhile, has lost more than 4% of its value against a basket of currencies since April 1, which is also the opposite of what normally happens when investors panic. “These moves are big for a very, very short period of time,” economist Rebecca Patterson of the Council on Foreign Relations said on an April 10 conference call. “It’s striking that we’re seeing dollar weakness against a lot of major currencies.”
The bond market doesn’t explain itself in real time, and investors making similar trades don’t necessarily pile into or out of a given asset class for the same reason. But what seems to be happening is a broad sell-off of dollar-denominated US assets, including stocks and bonds, at the same time.
If that trend persists or worsens, the implications are daunting. The market for Treasury securities is the deepest in the world because Washington issues so much debt to start with. Federal debt as a percentage of GDP is already at unprecedented levels for peacetime and is only going higher as Trump pursues a huge package of deficit-financed tax cuts. If global investors start to lose interest in Treasurys, rates will rise — as they have been — driving financing costs higher for the US government and for every borrower in America. And that could happen as the economy weakens and unemployment rises, which is "stagflation" or worse.
“All this adds up to a very precarious and concerning situation,” investing firm Evercore ISI explained in an April 11 analysis. “At a minimum, this means higher financing costs across government and the private sector, lower equity prices, and less fiscal policy flexibility to counteract any economic downturn. If the real driving force is the lack of confidence in the United States, even that might not be sufficient to salvage investor sentiment.”
Treasury Secretary Scott Bessent speaks to reporters outside the West Wing of the White House, Wednesday, April 9, 2025, in Washington, as White House press secretary Karoline Leavitt listens. (AP Photo/Evan Vucci) ·ASSOCIATED PRESS
Wall Street now wonders if Trump will get the message and rein in a trade war that’s quickly becoming disastrous. Trump budged a little on April 9, when he delayed “reciprocal” tariffs against dozens of countries that would have sharply raised prices for many things Americans buy. Political analysts noted that Trumpworld trade hawks Peter Navarro and Howard Lutnick went quiet as the more moderate Treasury Secretary Scott Bessent stepped up to explain the president’s thinking.
Yet while delaying the “reciprocal” tariffs, Trump pushed the tariff rate on Chinese imports to an absurd 145%, which is so high that some trade experts think Chinese cargo ships will sit idle until something changes. With the effective tariff rate on $3 trillion of imports at 27%, that implies a $700 billion tax hike on American businesses and consumers. Bond rates kept rising after Trump ditched the reciprocal tariffs, suggesting the move didn’t reassure markets at all.
Trump probably thinks he can jab markets with draconian tariff announcements, then backtrack and undo the damage if gets too severe. The message from bond investors of late is, we’re getting sick of this and America isn’t the only game in town. And a war with bond investors is one Trump almost certainly can’t win.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
