US President Donald Trump’s aggressive tariff policies risk harming “all US assets” and accelerating a long-term shift away from the dollar, an investment veteran has warned.
The comments by Mark Dowding, chief investment officer of fixed income at RBC Bluebay Asset Management, come after a week of panic-selling on US financial markets that drove up yields on US Treasury bills.
“It ends up hurting all US assets and ... the dollar, and it puts the US in a bad situation,” he said, adding that the trade war may have triggered a “longer-term turning point” for the dollar’s status as the global reserve currency.
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The way the tariffs are being handled is “so inept” that it also undermines Washington’s policy credibility, Dowding told the Post in an interview on Tuesday.
After a long period of “US growth exceptionalism”, Dowding said the country has lost some of its advantages over other economies, which is reducing the “attraction” of owning the dollar.
China is likely to reduce its purchases and holdings of the world’s safe-haven asset in the future, Dowding predicted, although he poured cold water on the idea that Beijing and Washington were on the verge of launching financial warfare.
Market speculation grew last week that the trade war was about to spill over into the financial markets, with worries that the US may delist Chinese companies from American stock exchanges and China might dump its US Treasuries.
Beijing has not provided an official statement on the issue.
Yu Yongding, a former adviser to China’s central bank, voiced grave concerns last week over the safety of the country’s overseas assets amid the rapidly escalating tensions with the US.
China is the second-largest foreign holder of US Treasury securities after Japan, with holdings worth US$784.3 billion, according to official US figures.
Yields on 10-year Treasury bills soared to 4.592 per cent on April 11, the highest level since February. Meanwhile, yields on 30-year Treasuries reached 5.02 per cent on April 9, the highest level since November 2023.
Even if the US and China go back to the negotiation table, Dowding said that tensions were likely to remain high as “hawkishness is prevalent within the Congress”.
“I have no doubts in my mind that we’re going towards [a] world operating around two trading poles as opposed to the more integrated globalised system that we’ve been used to in the past,” he said.
A world split between US and Chinese spheres would be more unstable and “could be more challenging for those countries trying to straddle the two”, Dowding said.
After several rounds of rapid-fire tit-for-tat tariff hikes, Beijing signalled on April 11 that it wanted to avoid a further escalation of the trade war. Though it raised duties on American imports to 125 per cent – matching the US’ latest tariff hike – it added that any future increase in levies by Washington would be “simply ignored”.
Dowding ruled out the possibility that countries around the world would unite to isolate the US, because “there is quite a lot of distrust towards China”, but he suggested that Beijing could turn this “threat” into an opportunity by pursuing a more open approach.
“China can respond to the US by reducing tariffs, going almost in the opposite direction,” he said. “As the US is becoming more closed, if China becomes more open, I can only imagine that being a constructive thing.”
More from South China Morning Post:
- China’s trade with Asia could plug hole left by US tariffs, economists say
- China appoints new trade representative as US tariff war heats up
- Trump’s trade war sends dollar to 6-month low as Wall Street questions US asset safety
- ‘Extreme’ US-China decoupling could cost US$2.5 trillion in equity, bond sell-off: Goldman
- ‘Everything’s on the table’: are the US and China edging toward financial war?
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