Director of the CBO Warns: Trump's trade policies undermine confidence in foreign investment, the status of the dollar and the sustainability of U.S. debt face challenges.

Taiwan • Business • 05/12 02:59
Director of the CBO Warns: Trump's trade policies undermine confidence in foreign investment, the status of the dollar and the sustainability of U.S. debt face challenges.

Phillip Swagel, the director of the Congressional Budget Office, stated in an interview with The Financial Times that President Trump's trade policies and tariffs have had an impact on Wall Street and could potentially affect foreign investors' confidence in U.S. assets. While a 10% tariff might reduce the deficit, its impact on market confidence and the dollar's status cannot be overlooked. With the rise in U.S. debt interest expenses, the CBO and policymakers view U.S. debt as being on an unsustainable trajectory.

Key Updates

05/12 10:59

The White House is speeding up efforts on 24 trade agreements, and the grace period for Trump's reciprocal tariffs is set to expire in early July.

The 90-day grace period for President Trump's "reciprocal tariff" policy will expire in early July, and the White House is accelerating the push for negotiations on 24 trade agreements. White House National Economic Council Chairman Hassett stated that many of these agreements are modeled after the US-UK agreements and have reached the final stages of negotiation. Countries are striving to complete negotiations before the end of the grace period to avoid high tariffs. Trump has personally intervened in the negotiations, and the timeline for announcing the agreements is closely aligned with the tariff policy deadline.

05/12 10:25

2025 U.S. CPI Report: Trump Tariffs Unexpectedly Slow Inflation, Drawing Attention from Economists

The U.S. Consumer Price Index (CPI) report for April of 2025 is about to be released, with inflation expected to stay at 2.4% and core CPI at 2.8%. Despite the Trump administration's imposition of tariffs up to 145% on countries such as China, economists note that these tariffs have temporarily suppressed inflation. This situation has caught the attention of both the market and policymakers, with the Federal Reserve opting to take a wait-and-see approach. Economists caution that inflationary pressures could surface in the next few months, with core CPI possibly climbing to 4% by year's end.

05/12 10:25

Yi-Tsai Yen, General Manager of T3EX: Global container shipping rates are rebounding, and shipping companies are adopting strategies for steady capacity management.

On May 12, Yen Yi-Tsai, General Manager of T.S. Lines, stated that global container shipping rates have stopped falling and are rising again, with expectations that they will continue to rise in the third and fourth quarters. Progress in the US-China tariff negotiations has helped restore market confidence, and the rebound in shipping rates is closely tied to changes in tariff policies. Shipping companies, flush with cash, have shifted their strategy to maintaining stable capacity and are no longer slashing prices to compete for cargo. With US retailers holding low inventory levels, a wave of restocking is expected to push shipping rates higher. Key factors influencing shipping rates include tariffs, the US dollar, US Treasury bonds, and geopolitical risks.

05/12 08:57

The US and China Reach Provisional Tariff Agreement in Geneva: Significant Tariff Reduction Over the Next 90 Days Aimed at Easing Trade Tensions

On May 12, 2025, after high-level economic and trade talks between the United States and China in Geneva, Switzerland, the United States and China announced a temporary 90-day tariff agreement. The United States will lower tariffs on Chinese goods from 145% to 30%, while China will lower tariffs on American goods from 125% to 10%. This move is intended to ease trade tensions and set up a framework for future economic and trade talks. Both parties committed to implementing the tariff adjustments by May 14 and suspending or canceling most retaliatory measures.

05/12 06:26

The U.S. core CPI is expected to rise in April, businesses are facing challenges in passing on tariff costs, and the slowdown in consumer spending is raising economic concerns.

The U.S. core Consumer Price Index (CPI) for April is projected to increase by 0.3%, indicating a rise in inflationary pressures. Businesses are encountering a new wave of tariff pressures and are trying to pass these costs onto consumers, but the slowing demand is limiting the effectiveness of these efforts. Retail sales data is anticipated to remain unchanged, indicating consumer anxiety about the economic outlook. The Federal Reserve has cautioned that uncertainty in trade policy could increase inflation and unemployment, posing a risk to the economy.

05/12 02:59

Director of the CBO Warns: Trump's trade policies undermine confidence in foreign investment, the status of the dollar and the sustainability of U.S. debt face challenges.

Phillip Swagel, the director of the Congressional Budget Office, stated in an interview with The Financial Times that President Trump's trade policies and tariffs have had an impact on Wall Street and could potentially affect foreign investors' confidence in U.S. assets. While a 10% tariff might reduce the deficit, its impact on market confidence and the dollar's status cannot be overlooked. With the rise in U.S. debt interest expenses, the CBO and policymakers view U.S. debt as being on an unsustainable trajectory.

05/12 01:24

The US-China trade talks wrapped up in Geneva: An agreement was reached to cut the $1.2 trillion trade deficit and set up a consultation mechanism.

On May 11, 2025, the United States and China concluded a two-day high-level economic and trade talks in Geneva, Switzerland, where they reached a consensus on several key issues. This marked the first high-level talks since President Trump imposed tariffs on Chinese goods earlier this year. The agreement aims to reduce the U.S. trade deficit by $1.2 trillion and establish a mechanism for U.S.-China economic and trade consultations. Both parties are set to release a joint statement on May 12, detailing the agreement.

05/11 22:55

The US and UK Reach a New Tariff Agreement, Talks Between the US, China, and Switzerland Begin: A Ray of Hope for the Global Trade Situation

In May 2025, the United States and the United Kingdom reached a bilateral trade agreement under a new tariff policy, which grants tariff reductions for British-made automobiles and steel products, reducing the base tariff to 10%. U.S. and Chinese officials met in Geneva, Switzerland, agreeing to set up a mechanism for economic and trade consultations, and a joint statement will be released on May 12. Market sentiment remains optimistic, U.S. Treasury yields have remained stable, and the Federal Reserve kept interest rates unchanged at its May 7 meeting, with the benchmark rate range at 4.25% to 4.50%.

05/11 18:25

Trump's announcement of a 145% tariff sparks market volatility, as U.S. inflation data indicates rising trends.

On April 2, 2025, U.S. President Donald Trump announced a 145% tariff on Chinese imports and threatened to take similar measures against Mexico, the EU, and other countries, leading to global market turmoil and sparking domestic controversy in the United States. April U.S. inflation data showed an estimated 0.3% increase in core CPI, indicating the potential impact of the tariff policy on prices. This policy, led by Trump's economic advisory team, aims to bring manufacturing back to the United States and act as leverage in trade negotiations.

05/11 14:25

An Experiment by American Small Business Owners Reveals Consumer Willingness to Pay High Prices for "Made in USA" Products: Results That Give Food for Thought

Afina Showerhead Filter founder Ramon van Meer tested if consumers are willing to pay more for products "Made in USA" amid US-China trade tensions. He sold two identical products on his website, one priced at $129 made in China and the other at $239 made in the USA. The results showed that 584 customers opted for the China-made version, while no one purchased the USA-made version, indicating that consumers are not willing to pay extra to support American manufacturing. Van Meer plans to shift production to other Asian countries to cut costs.

Trade War Aftermath: Market Volatility Remains Fresh

In April 2025, the Trump administration announced a 10% tariff on global imports, triggering significant financial market turbulence. CBO Director Swagel noted in a May 11 interview that this volatility could mark a turning point in foreign confidence in U.S. assets. He stated, "The market fluctuations in April are still fresh in our minds, and this memory may influence foreign investors' future asset allocation decisions."

Swagel added that although the market experienced temporary stability after Trump postponed some tariffs, foreign investors' concerns about U.S. policy uncertainty persist. The CBO estimates that a full 10% tariff could reduce the federal budget deficit by $2.2 trillion over the next decade. However, Swagel also pointed out that if tariffs were increased to 20%, the revenue growth would no longer be linear, indicating diminishing fiscal returns.

Foreign Confidence Shaken, Impact on Dollar Exchange Rate and Asset Allocation

Swagel mentioned that if foreign investors become hesitant about U.S. assets or merely rebalance their portfolios to reduce the proportion of U.S. securities, it could pressure the dollar exchange rate. He noted, "The strong position of the dollar relies on continued foreign purchases of U.S. assets, which not only supports economic growth and employment but also helps the government raise funds to address the massive budget deficit."

Recently, several pension funds and sovereign wealth funds have begun adjusting their dollar asset positions. CalSTRS Chief Investment Officer Scott Chen stated, "The targeting of U.S. assets has raised the question of whether we should diversify our investments." Similar trends have been observed in European and Australian pension funds, with some shifting funds to European markets, leading to euro appreciation and dollar pressure.

Soaring Debt Interest, Dollar's Reserve Status No Longer Secure

As early as March 2024, Swagel warned that with rising debt interest expenses, the dollar's status as a global reserve currency would not shield the U.S. from market pressures. According to U.S. Treasury data, in the first half of the 2025 fiscal year (October 2024 to March 2025), federal interest expenses rose by 11.6% year-over-year, reaching $582.46 billion, surpassing military spending for the same period ($443.064 billion).

The CBO's March 2025 "2025-2035 Long-Term Budget Outlook" shows that the U.S. federal debt-to-GDP ratio will rise from 100% in 2025 to 107% in 2029, and further to 156% by 2055. This trend has drawn significant attention from policymakers. Treasury Secretary Scott Bessent and Federal Reserve Chairman Jerome Powell both noted that U.S. debt is on an unsustainable path.

Budget and Tax Reform Policies Heighten Fiscal Pressure

The Trump administration is pushing to pass a budget reconciliation act by July 4, which includes making the tax cuts in the "2017 Tax Cuts and Jobs Act" (TCJA) permanent. The CBO noted that if the bill passes, it will add $6 trillion to the deficit over the next decade. Swagel stated that the CBO will release new 10-year economic and fiscal forecasts in the summer, which will provide a comprehensive assessment of the Trump administration's economic policy impact for the first time.

Although the Trump administration claims that tariffs and tax cuts can boost manufacturing and employment, the market remains skeptical about their fiscal sustainability and policy consistency. Swagel noted, "The market sentiment has shifted from extremely pessimistic to cautious, but this does not mean the risks have been eliminated."

The Dollar's Status Confronts Multiple Challenges

In addition to debt and deficit issues, the dollar's international status is challenged by policy uncertainty and changes in foreign investor behavior. According to reports from The Wall Street Journal and CNBC, former Treasury Secretary Yellen noted that investors have started to shy away from dollar assets, not due to market liquidity, but as a reaction to policy direction.

BlackRock CEO Larry Fink warned in his annual letter that if the U.S. fails to control its debt, the dollar's reserve currency status could be replaced by digital assets like Bitcoin. Moody's Analytics Chief Economist Mark Zandi pointed out that a 20% tariff would lead to a severe economic recession in the U.S., and he believes the likelihood of such a tariff policy lasting 10 years is extremely low.

References

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