Trade, Debt, and De-Americanization

From WSJ, "Will the Last Investor to Leave America Please Turn Out the
Lights" by James Macintosh
"Trade, or rather President Trump’s attack on it, provided the basic
reason to sell. His delay of the bizarrely calculated additional tariffs
on countries other than China offered midweek relief, and Friday night’s
exemption for iPhones and other electronics will offer further respite.
But investors quickly went back to working out the damage from the
tit-for-tat trade war across the Pacific. That is in addition to his
baseline tariff of 10%, even on countries with which the U.S. runs a
trade surplus.
Stocks naturally fell as Wall Street strategists upped their probability
of recession. ...
Debt reared its head early in the week as hedge funds began to liquidate
trades deep in the plumbing of the financial system. The unwinding of
leveraged positions drove big swings in a usually benign corner of
interest rates known as swap spreads. This led to heavy selling of
Treasurys that drove up yields and threatened to force more selling.
The prospect of a self-fulfilling spiral of selling put investors and
regulators on edge as a 2020-style panic in the bond market suddenly
appeared possible. Trump reversed course in time to prevent the worst.
But investors are again aware of the danger of a near-trillion-dollar
hedge-fund unwind. That in itself is a reason to reduce Treasury
exposure, at least until hedge-fund positions are cleaned out.
De-Americanization kicked in as investors watched the chaotic
policymaking from the White House, but it wasn’t only about the U.S.
losing its aura of economic competence. Far from strengthening as bond
yields rose, the dollar has fallen sharply. On Friday, it reached its
weakest level since 2022."
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Trade war is easy to win if and only when competitive gap is small and
in the absence of financial system ecology depending on persistent
borrowing by trade surplus nations.