The financial market sent an ominous signal on US President Trump's daily change of tariff policy: Be careful not to be willing.

The Wall Street Journal analyzed the article pointing out that the sell-off of US dollar and US Treasury bonds shows that the initial trade conflict may turn into a more dangerous "capital war", which may endanger the US financial hegemony. It is this dominance that has attracted trillions of dollars in foreign capital to the United States over the years.

"It's a fantasy to destroy trade without destroying capital flows," said Steven Blitz, chief American economist at GlobalData TS Lombard.

Some analysts have warned that, given that foreign investors were too optimistic about the U.S. growth prospects or the U.S. “Exception” at the beginning of the year, general conclusions should not be rushed to. Trump's trade policy has broken that narrative, whose trade policy may push up costs, and uncertainty in policy implementation is holding back U.S. economic growth.

The "necessity" of holding US bonds has weakened, and foreign capital has begun to withdraw

In addition to Trump's trade policy, global investors are also digesting the possible increased budget deficits in the United States and Europe and the possible erosion of U.S. monetary policy independence, which has led foreign investors to reevaluate U.S. assets.

The first thing to bear is U.S. debt. The analysis pointed out that the reasons for holding U.S. Treasury bonds have been reduced due to concerns about fiscal deficits, trade and monetary policy.

According to the Japanese Treasury Department, Japanese private investors sold $17.5 billion in long-term U.S. bonds in the week ending April 4, according to data from Japan's Treasury Department. According to Bank of America statistics, this is the largest foreign bond sales since the US election last November, and foreign investors account for a decrease in the share of buyers in the US bond auction in March.

Over the past two decades, foreign demand for U.S. bonds has pushed up U.S. asset prices and lowered interest rates, including 30-year mortgages. Currently, about 30% of the nearly $29 trillion in U.S. Treasury bonds held by the public are held by foreigners.

Europe may become a better destination for foreign capital

Even if market conditions stabilize, weak confidence in US dollar assets may have a longer-term negative impact on US households and businesses.

“The longer this continues, the less likely we will be to become a reserve currency than in the past,” said Eric Rosengren, who served as president of the Federal Reserve Bank of Boston from 2007 to 2021.

"Tariffs are just the tip of the iceberg. If the dollar depreciates by 30%, what is your return on investment in the United States? Everyone is doing this calculation."

Blackstone CEO Larry Fink said in a conference call with analysts earlier this month that the U.S. could face more intense competition, which had previously benefited from years of "overweight" and now Europe may be a better destination for foreign capital.

Ingo Mainert, chief investment officer of multi-assets at Allianz Asset Management, also said the company has been shifting from U.S. assets to European assets over the past month. He has received consultations from clients asking how to more significantly reduce exposure to the United States, including reducing allocation to indexes such as the MSCI World Index (which is given more than 70% of its weight to U.S. stocks). (International Finance News)