Signaling Risk:

US Dollar, Markets, Trump Tariffs—and Trust

❝ I am persuaded that the old maxim, ‘Honesty is the best policy’ applies with as much force to States as to individuals.

––Benjamin Franklin, quoted during treaty negotiations in France

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The April Swoon: Volatility Takes Center Stage

Trust is now squarely on the table for global investors, particularly in their exposure to U.S. markets and dollar-denominated assets. Consider the so-called “April swoon,” when U.S. Treasuries initially fell, briefly rebounded, and then ended the month lower—mirroring a slump in the dollar against a basket of trading partner currencies. The trigger? President Trump’s abrupt policy shift announcing reciprocal tariffs on all trading partners, large and small.

This market whiplash was more than a blip. It rekindled concerns about recession risks, inflation, and the direct impact of tariffs on U.S. businesses and consumers.

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Downgrade Drama: A Historic Shift in U.S. Credit Standing

In May, Moody’s downgraded the U.S. credit rating from Aaa to Aa1, marking its first such move since 1917. The downgrade, which cited a persistent fiscal deficit, mounting debt, and political gridlock, brought Moody’s in line with S&P and Fitch, which had already lowered their ratings in 2011 and 2023, respectively.

While U.S. markets have since rebounded, concerns remain unresolved. Reports indicate that tariff uncertainty is resurfacing. In line with the moniker coined by the Financial Times—TACO (Trump Always Chickens Out)—negotiations now seem to favor scaled-back, phased trade deals. Ninety trade deals in ninety days has morphed into a more cautious reality.

Trust could be called into question over the long term—trust in the decades-old fulcrum of the world’s largest economy.

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The Deficit Dilemma and Fed Independence at Risk

At the same time, concerns are intensifying about Federal Reserve independence, given Trump’s repeated attacks on Chair Jerome Powell, and about the deficit trajectory tied to Trump’s latest fiscal bill. This legislation, reportedly headed for Trump’s desk by July 4, includes deep tax cuts favoring top income earners and is expected to add $3.3 trillion to the already rising national debt.

The Congressional Budget Office currently estimates the deficit at $1.9 trillion, or 6.5% of GDP, which stands near $30 trillion. The Treasury covers this gap by issuing debt—but foreign investors must be willing to buy. And they weren’t, in April.

The arrows, while still anecdotal, are pointing in a single direction—more volatility and more risk ahead.

Foreign Buyers Step Back: Capital Flees

According to Treasury International Capital (TIC) data, April saw net outflows of $14.2 billion, with total outflows reaching $17.3 billion—the first reversal after three consecutive months of gains. Foreign holdings of U.S. Treasuries had peaked in March at $9.05 trillion. Then came April—and the exit.

Foreign investors voted with their feet, reversing capital inflows amid uncertainty about U.S. trade and fiscal policy.

While the outflows were modest relative to overall holdings, the timing was telling: Trump’s second term had just begun, and policy uncertainty was peaking.

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Resilience Replaces Growth: The Investor Wake-Up Call

Asset managers are also reassessing. According to Schroders’ Global Investor Insights Survey, 55% of institutional investors—including pension funds, family offices, and foundations—now prioritize resilience over growth. This has translated into a reduced appetite for U.S.-centric portfolios.

❝ It’s a little like Sleeping Beauty,” said Schroders CEO Richard Oldfield. “We all went to sleep and decided to go all-in on the U.S. ... The last few months have made us all wake up and think that diversification might not have been a bad thing after all.

This theme echoed at a Top1000funds.com investor roundtable in late April:

❝ I’m increasingly really worried about a lost decade in terms of real returns.
—John Greaves, Railpen UK

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Strategic Shifts: Re-Evaluating the Dollar’s Safe-Haven Status

Willis Towers Watson’s Chris Mansi voiced the uncertainty:

❝ Is the U.S. dollar still the flight to quality it has been? … We don’t need to answer that tomorrow, but it’s certainly one we need to think about.

J.P. Morgan Private Bank echoed the caution in its April report, Dollar Diversification: Why Now?:

❝ Unprecedented policy uncertainty is shaking global investors’ confidence. This has led to demands for a higher premium on U.S. assets, potentially weakening the dollar’s safe haven role.

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From Cyclical Dip to Structural Shift?

The U.S. has long run trade deficits, buying more than it sells. That imbalance once fed global confidence in dollar assets. But Trump’s agenda to reduce the deficit and weaken the dollar, if successful, could undermine that arrangement.

A slow but steady rotation away from U.S. assets could “turn a cyclical downturn in the dollar into a more structural weakening,” according to J.P. Morgan analysts.

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Economists Sound the Alarm: Safe Haven Status at Risk

A University of Chicago Booth School poll found that over 90% of economists warned that Trump’s spending plans and his attacks on Fed independence threaten U.S. financial credibility:

❝ Deliberate government actions to shrink the U.S. financial account and devalue the dollar … negatively impact the dollar’s safe haven status.

— Anna Cieslak, Duke University

Robert Barbera of Johns Hopkins added:

❝ Marry breathtaking fiscal excess with a White House Fed takeover, and I move from somewhat concerned to very, very concerned.

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Conclusion: Trust Is the Bellwether

While markets may be rallying, investor confidence is increasingly conditioned by trust—in U.S. institutions, Fed independence, and consistent policy signals.

❝ Facts will sort out whether the April swoon was an anomaly—or a warning shot.

In the end, this is not only about tariffs, deficits, or interest rates. It is about how much trust global markets can place in the economic leadership of the United States.

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Editor’s Note:

This essay contributes to econVue’s ongoing series examining the macro risks—and occasional opportunities—arising from President Trump’s determined efforts to reshape U.S. governance and the global economy under the MAGA banner. The central question remains: how much trust will these policies ultimately command, and at what cost?

To follow Marsha Vande Berg’s writings on econVue, please consider becoming a subscriber:

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