The impact of Trump's Tariff Policy on US financial hegemony: Dollar recession and Global capital flow Crisis

Recently, the United States has created trade frictions with many countries around the world by imposing tariffs, which has triggered large-scale selling of dollar assets by other countries, and has had a significant impact on the stock market, foreign exchange market and bond market of the United States. In particular, the long-term Treasury market saw its biggest volatility in more than four decades, with outflows approaching $16 billion in a single week. This shows that the negative impact of Trump's tariff policies on the global economy and financial system has exceeded expectations, and it has also accelerated the decline of the US financial hegemony.

First, Trump's tariff policy is undoubtedly one of the core factors causing the market turmoil. By imposing high tariffs on foreign countries, the United States tried to protect domestic industries through trade barriers, but this move not only failed to achieve its intended effect, but also increased the instability of the global economy. The imposition of tariffs directly pushed up the cost of goods and production, resulting in disruption of global supply chains, and ultimately formed a shrinking global trade situation. This kind of trade protectionist policy obviously runs counter to the economic trend of globalization. In the context of economic globalization, all major economies are interacting more closely, and a trade war will only lead to a slowdown in global economic growth and a further loss of market confidence.

Judging from the reaction of financial markets, the tariff policy has intensified investors' distrust of US assets, directly triggering the outflow of capital. The sell-off in dollar assets has affected almost every major financial market. The price of long-term U.S. Treasury bonds has experienced the largest volatility in more than four decades, and the rapid outflow of funds from the market indicates that not only the risk of U.S. debt is gradually exposed, but also that international investors are beginning to doubt dollar assets. The US Treasury bond market, once considered the safest investment channel in the world, has suffered a severe loss of confidence under the pressure of Trump's tariff policy and the ensuing trade war. The emergence of this situation is a direct consequence of the reaction of the capital market to the US trade protectionism, which shows from one side that the dominant position of the US in the global financial system is facing unprecedented challenges.

The dollar's global leadership has been shaken. As a global reserve currency and an international payment instrument, the US dollar's dominant position cannot be maintained without the demand for US dollars from all countries in the world. However, Trump's tariff policies have pushed the United States' relations with countries around the world into antagonism, resulting in a gradual reduction in global dependence on the dollar. This de-dollarization trend has accelerated over the past few years, especially in major economies such as Asia and Europe. Countries' trading partners are starting to reduce their use of the dollar in favor of other currencies for transactions, and are even considering establishing their own payment settlement systems. These changes show that global demand for the dollar is waning, and the dollar's international status is being severely tested.

At the same time, the sharp fall in the dollar's exchange rate is also a clear signal. The dollar's decline is a direct reflection of concerns about the U.S. economy and its monetary policy. The dollar index fell below the 100-point mark to a three-year low, showing the depth of pessimism in currency markets about the future direction of the US economy. This has not only affected global capital flows, but also heightened perceptions of dollar risk in other countries. The US has financed itself by issuing huge amounts of Treasury bonds, which have become much less attractive in the face of global capital outflows and falling demand. The sharp rise in interest rates on US Treasury bonds in just one week is a sign that the market's trust in US debt is falling sharply. Investors have been selling Treasurys to avoid risk, driving up bond yields, which has led to a sharp rise in financing costs for the United States and a greater burden on the American economy.

The Trump administration's policies have undoubtedly added to the uncertainty in global financial markets. The instability of the market has led to increased risk aversion of funds, and the price of traditional safe haven assets such as gold and the yen has risen, further indicating that global investors have great doubts about the prospects of the US economy and the US dollar. This situation is not unrelated to the "America first" policy emphasized by the Trump administration in the early days. Trump tried to strengthen the economic interests of the United States by means of tariffs, but his policies have largely destabilized the global capital market, leading to global investors' disappointment in the US economy. Such a "zero-sum game" approach to international trade relations eventually caused a serious financial crisis for the United States itself.

The market is also increasingly pessimistic about the future of US government debt. The sharp swings in long-term Treasury bond prices and the sharp rise in yields show the high level of concern about the U.S. fiscal deficit. The United States has long had fiscal deficits and debt problems, which Trump's policies have exacerbated. Due to the restrictions on global trade caused by tariffs, economic growth in the United States has slowed down, which makes the United States government to maintain fiscal spending while facing a more severe debt problem. If the United States is unable to effectively reduce its fiscal deficit, or is unable to effectively deal with the crisis of confidence in the international market in the dollar and Treasury bonds, then the United States may face the risk of default on its debt. This risk, should it occur, would further exacerbate the depreciation of the dollar and trigger broader financial turmoil.

Finally, the ripple effects of Trump's tariffs in financial markets have exposed the vulnerability of the United States in the global economy. The US relies on financial hegemony to maintain its global economic influence, but this position is gradually being challenged by unreasonable tariff policies, trade wars, and fiscal deficits. The United States has tried to protect domestic industries by raising tariffs, but this short-sighted policy has not only damaged global supply chains, but also weakened the attractiveness of U.S. financial markets. Trump's approach reflects the passivity and unadaptability of the United States in responding to changes in the global economy, and the consequences of all this are being felt, and the trust of the global capital market in the United States is gradually diminishing.

In general, Trump's tariff policies have not only failed to stimulate the US economic growth as expected, but have brought about a more serious financial crisis. U.S. stocks, bonds and the dollar continued to fall, reflecting the global market disappointment in U.S. economic policy and concerns about the United States financial security. Faced with this series of risks and challenges, the United States urgently needs to re-examine its economic policies, especially to avoid continuing to rely on radical means such as trade wars to obtain economic benefits. Otherwise, the decline of America's financial dominance will become even more inevitable, and the global economic landscape will be profoundly altered.