This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
Local Governments Across China Roll Out Consumer Stimulus Measures Central Government Unveils Chinese-Style ‘Income-Led Growth’ Strategy Extraordinary Measures Aimed at Countering Deflation Risk
The Chinese government is stepping up efforts to stimulate domestic demand as deflationary pressures mount across the economy. With signs of a deepening slowdown, both central and local governments are taking aggressive steps to boost consumer spending. In particular, the central government has unveiled a consumption stimulus plan focused on income growth, signaling an all-out push to reinvigorate the economy through increased household purchasing power and targeted fiscal support.
On April 14 (Korea time), the South China Morning Post (SCMP) reported that China’s central and local governments are launching a wave of consumer stimulus policies in a full-scale effort to counter economic stagnation. A notable example is Hainan Province, which opened the China International Consumer Products Expo that day—the Asia-Pacific region's largest premium consumer goods exhibition, with over 4,100 brands from more than 70 countries.
Hainan is also implementing a multi-year fiscal stimulus, committing over 10 billion yuan (~$1.4 billion) through 2027 to support low-interest consumer loans and boost spending. Similarly, Sichuan Province announced earlier this month that it will subsidize consumer loans for big-ticket items such as cars, electronics, furniture, and home appliances. Between April and September, residents who shop at physical stores can apply for up to two loans per person for eligible items.
At the National People’s Congress last month, Beijing set a 2024 GDP growth target of around 5% and raised its fiscal deficit ratio by one percentage point, signaling greater government spending to stimulate domestic demand. On March 17, authorities also unveiled a “Special Action Plan for Consumer Promotion” spanning 8 categories and 30 measures, including: increasing urban and rural incomes; expanding consumption support; promoting services; upgrading car and home appliance purchases; improving the consumption environment; streamlining regulations; and enhancing policy support
Markets have taken note that the core of the action plan centers on boosting household income. The government aims to: support employment in key sectors and SMEs; expand rural infrastructure projects to increase hiring; enact reasonable minimum wage hikes; and strengthen unemployment insurance refund policies
To broaden household wealth channels, Beijing will inject long-term institutional capital into the stock market—including from commercial insurers, the National Social Security Fund, basic pension funds, and corporate pension funds—to stabilize equities. It also plans to diversify bond products suited to retail investors.
Additionally, the government will encourage rural households to leverage real estate—which accounts for 70% of household assets in China—through rental, equity-sharing, and joint development models. It also aims to adjust housing-related tax policies to stabilize the property market while increasing rural income.
Experts have drawn parallels between China’s plan and South Korea’s “income-led growth” policy under former President Moon Jae-in. One market analyst stated, “That policy was widely viewed as a failure in Korea—I don’t see why it would succeed in China,” adding that rising wages beyond productivity levels will inevitably erode competitiveness, especially in China’s price-driven export model.
Despite the risks, Beijing is pushing ahead with domestic stimulus as the economy faces deflationary pressure. According to the National Bureau of Statistics, China’s February Consumer Price Index (CPI) fell 0.7% year-on-year, steeper than Bloomberg’s consensus forecast of -0.4%. Falling prices undermine consumer confidence, squeeze corporate profits, and risk a cycle of wage cuts and job losses.
With domestic consumption still weak, pessimism is mounting. On April 14, Bloomberg reported that Goldman Sachs strategists warned clients that escalating U.S.–China trade tensions fuel fears of a global recession, alongside broader decoupling in capital markets, technology, and geopolitics.
As a result, Goldman revised its 12-month target for the MSCI China Index from 81 to 75—the second such downgrade this month. It also lowered its forecast for the CSI 300 Index, a benchmark for Shanghai and Shenzhen’s top firms, from 4,500 to 4,300.
President Trump signals a potential temporary waiver on tariffs for auto parts. Component-specific duties—covering engines, transmissions, and other key parts—are set to take effect on May 3. New tariffs could raise vehicle prices by as much as $20,000, putting further pressure on consumers and automakers alike.
U.S. President Donald Trump has signaled a potential additional exemption from tariffs on automotive parts—a notable shift from his earlier hardline stance. The move follows a wave of criticism over his recent decision to suspend reciprocal tariffs on smartphones and other electronics, which sparked accusations of backtracking. In response to that criticism, Trump had firmly declared, “Nobody is getting off the hook,” reinforcing a message of zero tolerance. His latest remarks, however, suggest a more flexible approach, highlighting an apparent contradiction in the administration’s tariff policy.
On April 14 (local time), Bloomberg reported that President Donald Trump is considering a temporary tariff exemption for imported auto parts, in a move aimed at giving U.S. automakers more time to establish domestic production facilities. During a meeting at the White House with El Salvador President Nayib Bukele, Trump responded to a question about potential product exemptions by saying, “I am reviewing something to help some of the car companies.”
Trump noted that automakers are beginning to shift production from Canada and Mexico to the U.S., but added, “They need a little more time.” The administration began imposing a 25% tariff on imported vehicles on April 3, but tariffs on key parts—such as engines, transmissions, and powertrains—are set to take effect on May 3.
Observers interpret Trump’s comments as an acknowledgment of growing public concern that sweeping auto tariffs could sharply increase car prices, a key commodity for American consumers. Research from Anderson Economic Group estimates that tariffs could raise the price of some high-end imported vehicles by up to $20,000, while even compact sedans may see price hikes between $2,500 and $4,500. The administration appears to be weighing delayed tariffs on some parts in exchange for automakers’ commitment to relocate supply chains to the U.S.
Just days earlier, on April 11, the U.S. Customs and Border Protection (CBP) excluded 20 electronics products—including smartphones, PCs, and hard drives—from reciprocal tariffs. While the administration insisted the exemptions were temporary, Trump’s shifting stance has created confusion and concern across markets.
Trump’s frequent adjustments to tariff policy have left markets, businesses, and U.S. trade partners scrambling. The cycle of sudden tariff announcements, followed by delays, partial exemptions, or re-impositions, has made long-term planning nearly impossible for many companies. Carl Tannenbaum, chief economist at Northern Trust, commented, “The damage to consumer and investor confidence is already irreparable.”
Faced with stock and bond market selloffs and mounting recession warnings from Wall Street, Trump has gradually softened his tariff stance. Critics say the ad hoc nature of these policies suggests even Trump himself has lost direction, while China remains unmoved, responding with counter-tariffs and rare earth export threats. With rising inflation and slowing growth, domestic opposition to the trade war is also intensifying, making a prolonged tariff standoff increasingly untenable.
Amid these developments, South Korea is preparing for trade talks with the U.S. Treasury Department next week. Treasury Secretary Scott Besant, who is leading U.S. trade negotiations, confirmed on April 14, “We’re scheduled to negotiate with South Korea next week.”
Besant emphasized that “the first movers will benefit most,” adding, “Usually, those who strike deals first get the best terms.” Asked which country he expected to move first, he replied, “That’s up to them.”
When asked if any deals might be struck before the 90-day reciprocal tariff freeze ends, Besant said, “I think many could. These may not be finalized trade agreements, but we’ll reach principles we can build on.” On whether reciprocal tariffs could be fully eliminated, he stated, “I tell countries, ‘Bring your best offer.’ We’ll see what they bring to the table.”
Besant also reiterated that negotiations with allies like South Korea, Japan, the UK, India, and Australia are the administration’s top priority. According to The Wall Street Journal, he has already been in contact with counterparts from five countries. His rapid engagement with nations facing tariffs above 10% began after he assumed his new role as presidential adviser and chief trade negotiator. On April 9, he announced at the American Bankers Association (ABA) that he would lead trade negotiations, and later that day briefed reporters at the White House following Trump’s reciprocal tariff freeze announcement.
Third Request Following 2007 and 2016 High-precision maps at a 1:5000 scale is necessary for accurate navigation guidance The government is considering risks of leaking national security and classified information.
For the third time since 2007, tech giant Google has knocked on South Korea’s door, once again requesting permission to export the country’s high-precision map data to its overseas servers. The latest application, submitted in February 2025, marks nine years since the company’s last attempt in 2016.
The maps Google seeks are nothing short of meticulous — scaled at 1:5,000, they translate 50 meters of real-world distance into just a centimeter on screen. With that level of detail, not just streets but narrow alleyways and the contours of individual buildings are clearly defined. These maps are a far cry from the 1:25,000 scale Google Maps currently uses in South Korea, and Google says this limitation is a serious inconvenience — especially for foreign tourists.
According to the company, the reduced accuracy of Google Maps in South Korea disrupts navigation for international visitors, who often rely on the global-standard app for travel. In the absence of high-precision data, only public transit routes are supported. Driving, walking, or cycling directions? Not an option. Tourists must instead turn to domestic apps like Naver Map or TMap, and switch them to English — a workaround Google calls inefficient. It also notes that South Korea remains the only OECD member that restricts the export of map data overseas.
But there’s more than tourist convenience at stake. South Korea has rejected Google’s requests twice before — each time citing national security. The government’s position is shaped by the unique tension on the Korean Peninsula, where detailed geospatial information could, if paired with satellite imagery, be misused to target sensitive military installations.
Back in 2016, the government offered a compromise: Google could export the data if it built a data center on Korean soil, blurred military and security-related sites, or used domestically filtered versions of the maps. Google, however, dismissed the proposal, stating those conditions were “not subject to negotiation.”
Today, Google maintains nearly 30 data centers across 11 countries, including Taiwan, Japan, and Singapore. It is expanding in Thailand and Malaysia — but South Korea remains conspicuously absent from that list. This time around, though, Google appears more flexible. In its latest request, the company indicated it is willing to comply with the demand to obscure sensitive facilities — a notable shift from its earlier stance.
Still, unresolved concerns persist. Granting Google’s request would mean handing over the exact coordinates of every sensitive site — essentially, critical security information would be entrusted to a foreign corporation. A study published in the Journal of the Korean Cartographic Association warns that when high-resolution maps are layered with satellite images, it’s possible to uncover strategic military routes and supply lines, such as those within the Capital Defense Command. That’s why, to date, the South Korean government has never approved such exports — not even to industry titans like Apple or BMW, who also had their requests denied.
What’s more, Google’s current application doesn’t explicitly guarantee that sensitive sites will be blurred at the government’s request. If the data is transferred and Google changes its internal policy later, Seoul would be left with no legal mechanism to enforce its conditions. The company still has no plans to build a Korean data center either. Instead, it has proposed appointing a point-of-contact and establishing a hotline — a crisis-only phone line — to address any issues that may arise. For some officials, that may not be enough.
Many analysts see Google’s persistent lobbying not as a matter of convenience, but as part of a larger ambition — building out its global "Google ecosystem." A key pillar in this vision is Android Automotive, the company’s in-car operating system that blends navigation, real-time data, and entertainment. In global markets, this system already ties into map-based advertising — pushing promotions to users as they pass by certain locations.
High-precision mapping, therefore, isn't just about routes — it's the foundation for future technologies: self-driving cars, drone delivery systems, and the sprawling Internet of Things (IoT). To train those systems and perfect those services, Google needs data — and lots of it.
Recent geopolitical developments have added new pressure. On March 31, the United States Trade Representative (USTR) issued its 2025 National Trade Estimate Report on Foreign Trade Barriers. In it, the USTR criticized South Korea’s map data restrictions as a “digital trade barrier” — a label that plays directly into Google’s argument. The company has long maintained, through formal channels like the USTR, that the export ban is a form of non-tariff trade obstruction.
These concerns are especially sensitive now, as the Trump administration recently imposed 25% tariffs on South Korean exports — despite the two countries' longstanding free trade agreement and military alliance. Some worry that Seoul’s continued resistance to Google’s request might become another justification for trade penalties down the road.
The fate of Google’s request now lies in the hands of the Map Export Review Council, a multi-agency body that includes representatives from the Ministry of Land, Infrastructure and Transport, Ministry of Science and ICT, Ministry of Foreign Affairs, Ministry of Unification, Ministry of National Defense, Ministry of the Interior and Safety, Ministry of Trade, Industry and Energy, and the National Intelligence Service.
By law, the council must make a decision within 60 days of receiving a request — though it is allowed one extension of equal length. In 2016, Google’s application filed in June was extended and ultimately rejected in November.
With the latest application submitted in February 2025, the final verdict on Google’s third attempt to export high-precision map data — its “third round” — is expected sometime between July and August.
U.S. Treasury Yields Rise Amid Economic Uncertainty Securities Industry: "China Sold U.S. Bonds as a Form of Retaliation" Some Foreign Media Spotlight Japan’s 'Bond Vigilantes'
In a surprising twist for global markets, U.S. Treasury bonds—long viewed as the ultimate safe-haven asset—are no longer the comfort blanket investors typically reach for in turbulent times. Amid growing fears of an economic downturn, one would expect demand for U.S. government debt to surge. Instead, the opposite has occurred: prices have plunged, and the ripple effects are raising eyebrows across financial capitals.
This unexpected retreat has triggered intense speculation. Many are now asking: Are major U.S. bondholders like China and Japan deliberately offloading Treasuries to send a message—or to shift the balance in ongoing geopolitical standoffs?
The numbers speak volumes. As of April 11, the yield on the benchmark 10-year U.S. Treasury had jumped to 4.494%, up from 4.009% just a week earlier. That half-percentage-point surge marks the biggest weekly increase since November 2001, according to international media reports.
For context, when Treasury yields rise, bond prices fall. Typically, economic uncertainty drives investors toward U.S. Treasuries, pushing prices up and yields down. But in this case, the opposite trend has unfolded—a rare and unsettling anomaly in global capital flows.
Analysts attribute this jarring shift to foreign capital fleeing the U.S. bond market. The Financial Times didn’t mince words, stating that President Donald Trump’s erratic tariff policies have shaken international confidence in American economic stability. Similarly, Peter Tchir, Head of Macro Strategy at Academy Securities, emphasized that uncertainty over Trump’s next moves is “increasing pressure to sell off U.S. Treasuries and corporate bonds.”
Some experts believe the key to understanding the sell-off lies in Beijing. As the Trump administration intensifies trade barriers against China, rumors are swirling that China is retaliating by dumping U.S. bonds—weaponizing its massive Treasury holdings.
And it’s not an unprecedented tactic. During a tense chapter of the U.S.-China trade war in 2023, Beijing liquidated $240 billion worth of U.S. Treasuries—a dramatic move that rattled financial markets worldwide.
This time may be no different. In a note to investors, Ataru Okumura, Chief Interest Rate Strategist at SMBC Nikko Securities, suggested that China could again be unloading Treasuries as a retaliatory tool—perhaps even to jolt global markets and gain leverage in trade negotiations.
Echoing that concern, veteran Wall Street analyst Ed Yardeni warned that investors are growing uneasy—not just about China’s next move, but about whether other major holders of U.S. debt could follow suit.
But China may not be the only—or even the primary—actor behind the bond market’s turmoil. Some analysts point to Japan, which holds more U.S. debt than any other country.
A Fox Business report on April 10 suggested that the dramatic spikes in yields on 10- and 30-year Treasuries may have been triggered by large-scale Japanese sell-offs. Charlie Gasparino, a journalist with strong connections to pro-Trump circles, claimed that sources in the White House and major asset management firms linked Japan’s bond dump to President Trump’s decision to delay tariffs by 90 days. The implication? Japan’s move shook the administration’s confidence in the market’s stability.
“If large-scale bond sales continue,” Gasparino warned, “people will lose confidence in the U.S. economy.”
Nikkei Shimbun further fueled the debate with its April 11 coverage, suggesting that Japan’s influential “bond vigilantes” may have played a role in restraining Trump’s tariff ambitions. These vigilantes—typically investors who oppose reckless fiscal policies—are known for protesting by selling off government bonds, driving up interest rates in the process.
Recent figures from Japan’s Ministry of Finance seem to support this theory. Japanese investors net sold 2.5 trillion yen (approximately $165 billion USD) in foreign bonds, including U.S. Treasuries, during the past week—the largest outflow in five months.
CEA Chair Stephen Miran’s Remarks Spark Controversy Critics Say He’s Trapped in a Bretton Woods–Era Mindset Pushing Theory Without Reflecting Structural Market Shifts
Stephen Miran, Chairman of the White House Council of Economic Advisers (CEA), is emerging as the key architect behind the Trump administration’s aggressive tariff strategy. A former hedge fund strategist and Treasury advisor, Miran drew widespread attention late last year when he released a report arguing that tariffs are the only viable solution to America’s twin deficits—its trade imbalance and fiscal shortfall. However, his position has drawn sharp criticism from economists and academics, many of whom argue that his proposals reflect a fundamental misunderstanding of the global economic system. Some go so far as to label his views an "extreme case of reality denial" that may ultimately be remembered as a cautionary tale in modern economic policymaking.
On April 14 (local time), financial sector insiders reported growing belief on Wall Street that President Trump’s sweeping tariff policy has been inspired by the “Miran Report.” This document—“A User’s Guide to Restructuring the Global Trading System”—was authored by Stephen Miran, a member of the White House Council of Economic Advisers, and released in November 2023. It argues that the U.S. is facing a modern form of the Triffin Dilemma and that aggressive tariff strategies are necessary to overcome it.
Miran’s report reinterprets the Triffin Dilemma for today’s global economy, framing it as the root cause of America’s twin deficits—trade and fiscal. The original dilemma, first proposed in the 1960s, stated that for a currency to serve as a global reserve, the issuing country must provide liquidity (i.e., run trade deficits), but in doing so accumulates debt and undermines confidence in the currency.
According to Miran, the U.S. today bears the burden of maintaining the global financial system through persistent deficits, and he proposes that tariffs should be deployed not merely as protectionist tools but as strategic instruments to:
Correct market imbalances
Adjust foreign currency valuations
Rebuild U.S. manufacturing
And even boost tariff-based revenues.
To achieve these goals, Miran proposes the creation of a new global monetary agreement, dubbed the “Mar-a-Lago Accord,” referencing President Trump’s Florida resort and echoing the 1985 Plaza Accord. He advocates for coordinated dollar weakening through multilateral cooperation.
In the report, Miran argues that the U.S. must engineer significant appreciation of the euro, yen, and yuan to reduce its deficits. His radical proposal includes forcing foreign governments to buy 100-year U.S. Treasury bonds at near-zero interest rates. By doing so, countries would need to purchase dollars, maintaining the greenback’s global dominance despite reduced short-term appeal.
In a recent interview, Miran downplayed concerns over market turmoil following Trump’s tariff announcements, calling the reaction “overblown,” and claiming, “President Trump is laying the foundation for a tremendous trade deal that will benefit American workers.” He added that “dozens of countries are lining up to strike new agreements with us.”
Academic and economic circles have fiercely criticized the Miran Report, calling its logic simplistic and ideologically driven. Experts argue that America’s twin deficits cannot be resolved through tariffs alone, as trade imbalances stem from complex global supply chains, consumer preferences, and corporate production strategies.
Economists also question Miran’s revival of the Triffin Dilemma, noting that it was relevant under the fixed exchange rate Bretton Woods system, which no longer exists. Today’s floating currency regime and more diversified global capital flows render the dilemma far less applicable. Additionally, U.S. trade has improved in recent years, especially through energy exports like shale gas.
Miran’s strategy is also seen as outdated in its focus on manufacturing, neglecting the reality that global trade is increasingly digital and services-based. For example, U.S. tech giants derive most of their profits from intellectual property and overseas subsidiaries, areas largely unaffected by tariffs.
The biggest concern is that tariffs ultimately increase consumer costs. Higher import taxes lead to price hikes, fueling inflation and weakening domestic consumption. In today’s inflation-sensitive climate, such policies may backfire by shrinking household purchasing power and slowing economic growth. Many now argue that Trump’s protectionism could become a boomerang that weakens U.S. competitiveness in the long run
Some commentators have drawn parallels between Stephen Miran and Jang Ha-sung, the former South Korean presidential adviser known for championing income-led growth. Both, critics say, oversimplify economics, attempting to solve systemic problems through one-size-fits-all solutions—Miran with tariffs, and Jang with wage hikes.
Miran’s tariff-and-currency prescription is increasingly being seen as not just theoretically flawed but detached from economic reality. His proposal for a Mar-a-Lago Accord to coordinate currency realignments is also facing skepticism. While the intent to correct imbalances is noted, today’s global economy is vastly more fragmented and complex than in 1985, when the Plaza Accord was struck.
It’s unclear whether major trade partners like China, the EU, or Japan would acquiesce to the U.S.’s unilateral demands, especially amid ongoing U.S.–China tensions and U.S.–EU trade frictions. The assumption that such coordination is still politically and economically feasible is seen as highly unrealistic.
Despite mounting criticism, Miran remains unwavering. Like Jang, who argued wage increases alone could spur economic growth, Miran appears anchored in America-centric thinking and blind to broader macroeconomic implications. Critics warn that both men use policy as a political tool for short-term impact, rather than ensuring sustainable, long-term economic governance.
U.S. FTC vs. Meta: Antitrust Court Battle Intensifies Meta Could Be Forced to Divest Instagram and WhatsApp if It Loses EU Adds Pressure with Probe Into Possible DMA Violations
The first antitrust trial against Meta Platforms, Facebook's parent company, has officially begun—nearly five years after the lawsuit was filed by the U.S. Federal Trade Commission (FTC). The FTC argues that Meta has maintained a monopoly in the social media market by acquiring potential rivals Instagram and WhatsApp, consolidating its dominance and stifling competition. However, Meta denies the allegations, maintaining that its services compete fiercely with numerous online platforms and do not hold a monopoly in any meaningful legal sense.
On April 14 (Korea time), The Washington Post and other media outlets reported that a federal court in Washington, D.C. began the first antitrust trial against Meta, nearly five years after the lawsuit was initially filed. The trial centers on whether Meta’s acquisitions of Instagram and WhatsApp constituted anti-competitive behavior that harmed market competition.
The U.S. Federal Trade Commission (FTC) alleges that Meta illegally acquired Instagram and WhatsApp to suppress competition and consolidate monopoly power. FTC lawyers argued, “Meta’s executives determined that buying a competitor was easier than competing with one.” They added, “For over a century, American public policy has required companies to compete if they wish to succeed—Meta broke that promise.”
The FTC also cited internal emails and messages from CEO Mark Zuckerberg at the time of the acquisitions, indicating that the purchases were intended to neutralize competition. The agency claims that Meta preemptively bought WhatsApp to block a possible Google acquisition and tried to purchase Snapchat for $6 billion in 2013, though the offer was rejected.
Meta argues that the FTC is mischaracterizing the competitive landscape. The company claims it faces fierce competition from other platforms, such as TikTok, and therefore cannot be considered a monopoly. Meta’s legal team emphasized, “Attempting to undo the Instagram and WhatsApp deals a decade after regulatory approval would set a dangerous precedent for the industry.”
Zuckerberg, called as a witness, stated that the nature of social media has significantly evolved over time, transforming from a simple messaging tool into a broader entertainment platform. If the court adopts this broader definition, Meta could argue that it competes with companies like YouTube, further weakening monopoly claims.
If Meta loses, the company may be forced to divest Instagram and WhatsApp. This would be a major blow, especially as Facebook’s core platform weakens while Instagram and WhatsApp continue to grow. According to eMarketer, approximately 50% of Meta’s U.S. revenue in 2024 is expected to come from Instagram advertising.
However, legal experts caution that FTC success is not guaranteed. The agency previously sued Meta in 2020 on similar grounds, but the court dismissed the case, stating that the FTC had failed to demonstrate Meta’s dominance adequately. The FTC refiled in August 2021 with a more detailed analysis, and in January 2022, the court allowed the case to proceed.
After years of legal wrangling, the trial is officially underway, but many believe the FTC still faces an uphill battle. One industry insider commented, “To win, the FTC must prove that Meta would not have retained its dominant position without acquiring Instagram and WhatsApp. That’s a hypothetical argument—and a tough one to prove.”
Beyond the FTC trial, Meta is also facing regulatory scrutiny in Europe. The European Union (EU) is investigating whether Meta violated the Digital Markets Act (DMA), a law aimed at curbing the power of major tech platforms designated as “gatekeepers.”
Under the DMA, violations can trigger fines of up to 10% of global revenue and up to 20% for repeat offenses. Last year, the European Commission launched investigations into Apple, Alphabet (Google), and Meta over policies that restrict users from choosing alternative payment methods (“anti-steering”).
Alphabet has already received preliminary findings indicating DMA violations. While results for Apple and Meta have not yet been released, the EU's assessment of Meta is expected within weeks.
On April 8, EU Executive Vice President Teresa Ribera stated that conclusions on Meta and Apple’s DMA compliance would be finalized soon. She warned, “If companies do not show a willingness to cooperate in resolving these issues, we will not hesitate to impose fines as outlined in the law.”
U.S. Capital Markets Suffer Triple Decline, Undermining Investor Confidence Trump’s Unpredictable Tariff Policies Fuel Market Uncertainty and Capital Flight Real Income Erosion and Recession Risks Now in Sharp Focus
Since President Donald Trump launched a full-scale global tariff war, one theme has emerged across U.S. financial markets: capital flight. The pillars of investor trust—the dollar, U.S. Treasury bonds, and equities—are now shaking in unison. Once seen as unshakable symbols of American financial supremacy, all three are under pressure, driven by growing unease over a tariff policy that appears to lack both consistency and principle. Disillusioned by this uncertainty, global investors are increasingly embracing a strategy of “Sell America.” The scale of the capital exodus has become so pronounced that some analysts are now questioning whether the United States can continue to function as the world’s preeminent economic power.
On April 14 (Korea Time), the investment banking industry reported that market volatility has intensified on Wall Street following President Trump’s tariff escalation. A weaker dollar and a massive selloff in U.S. Treasuries dominated investor sentiment.
While Trump temporarily delayed the imposition of some of the harshest tariffs, avoiding a full-blown crisis, the S&P 500 still surged 5.7% last week, marking its best weekly performance since November 2023. However, the index remains 13% below its February 19 all-time high, amid persistent trade tensions between the U.S. and China and uncertainty surrounding tariffs yet to be enforced.
Despite the stock rebound, confidence in U.S. assets has been shaken. Investors spent much of last week dumping Treasury bonds, leading to historic spikes in yields. On April 11 alone: The 10-year Treasury yield jumped 10 basis points, totaling nearly 50bp of gains for the week—the largest one-week spike in 24 years. The 2-year yield rose 12bp, with a total increase of over 30bp for the week. The U.S. Dollar Index, which measures the dollar’s strength against six major currencies, plunged to 99.00 before slightly rebounding to 99.81, dipping below the 100 mark for the first time since April 2022.
The $29 trillion U.S. Treasury market is a cornerstone of the global financial system. Central banks and major financial institutions worldwide rely heavily on U.S. Treasuries, with short-term bonds often treated as cash equivalents. The selloff signals a loss of trust in U.S. fiscal stability, with concerns mounting that Trump’s tariff policies could destabilize global supply chains and weaken America’s economic fundamentals.
Investors are now counting on a “Fed put”—expecting the Federal Reserve to step in and stabilize the market. The surge in long-term yields has been largely attributed to basis trading dislocations, including margin calls and forced liquidations between spot and futures markets.
On April 11, Federal Reserve Bank of Boston President Susan Collins told the Financial Times, “The Fed is absolutely ready to help stabilize markets if needed.” She acknowledged no current liquidity concerns but affirmed the Fed has tools ready to address any breakdowns in market function or liquidity.
At the White House, press secretary Caroline Leavitt also sought to reassure markets, stating that Treasury Secretary Scott Besant is “closely monitoring the bond market” and is prepared to act if necessary. Talks of reopening negotiations with China further contributed to calming investor anxiety.
As tariff tensions escalate, economists warn of ripple effects through inflation, monetary policy, and global trade:
Import Inflation: Tariffs raise import prices, reducing real incomes, which can lead to consumer pullback and economic slowdown.
Policy Constraint: Rising inflation from tariffs may hamper the Fed’s ability to cut rates, undermining efforts to stimulate the economy.
Reduced Trade and Output: Higher tariffs suppress manufacturing and global trade volumes, dragging down global growth.
Negative Wealth Effect: Stock market declines could reduce household wealth, dampening consumption and slowing growth further.
In a worst-case scenario, the U.S. could even lose its status as the world’s reserve currency issuer. Former Treasury Secretary Lawrence Summers warned that America may be facing its “Suez Moment”—a reference to the 1956 Suez Canal crisis, which saw Britain forced to retreat militarily and economically, ultimately ceding its global leadership role and the pound’s reserve status.
Summers cautioned that if Trump continues to escalate the trade war, the U.S. could risk repeating Britain’s fall from hegemonic power.
CEA’s Miran Report Revives Calls for Ultra-Long Treasuries and Weak-Dollar Strategy, Evoking Memories of the Plaza Accord
Amid rising global economic tensions, the concept of a so-called “Mar-a-Lago Accord” is increasingly being discussed on Wall Street and in international financial circles. With President Donald Trump back in power, renewed attention is being paid to the external economic strategy proposed by one of his top advisors. The strategy, outlined in a widely circulated policy report, presents a radical blueprint to overhaul the U.S.-led global financial order established after World War II. Central to the proposal is a deliberate push for a weaker U.S. dollar—a move aimed at addressing the country's twin deficits in fiscal balance and current account.
On April 14 (local time), The New York Times and other U.S. media reported that the Trump administration is reviewing a multilateral currency adjustment framework dubbed the "Mar-a-Lago Accord." The name is derived from Trump’s private Florida resort in Palm Beach, which has functioned as a hub of international diplomacy since his presidency. The idea was first proposed in November by Stephen Miran, a member of the White House Council of Economic Advisers (CEA), in a report titled “A User’s Guide to Restructuring the Global Trading System.”
In the report, Miran argues that U.S. allies should share the cost of correcting America’s chronic trade deficit caused by a strong dollar. He proposes that allies sell off their short-term U.S. Treasury holdings (under 10 years) and instead buy 100-year ultra-long-term Treasuries—preferably at near-zero interest rates. This move would reduce the burden of interest payments on debt issued during high-rate periods, helping to stabilize the U.S. fiscal deficit. It would also boost demand for long-term bonds, ease upward pressure on interest rates, and weaken the U.S. dollar—one of the core objectives.
Miran further suggests that if allies resist this proposal, tariffs and security cooperation should be used as leverage in diplomatic negotiations. He argues that the high tariffs used during the 2018–2019 U.S.–China trade war increased revenue without fueling inflation, proposing a “20% optimal tariff rate” by country. His broader theory is that if allies buy U.S. debt instruments like perpetual bonds at zero interest, the dollar can maintain reserve currency status with reduced fiscal pressure, ultimately restoring trade balance and narrowing the U.S. current account deficit.
The Mar-a-Lago Accord’s three strategic goals are to:
Historically, U.S. administrations have struggled to achieve all three simultaneously, as they inherently conflict. The U.S. exports debt (Treasuries), not goods like aircraft or automobiles, and must endure trade deficits to supply the world with dollar reserves. Unlike most countries, the U.S. does not experience the corrective currency depreciation typically triggered by trade deficits, resulting in what economists call the "Triffin Dilemma."
President Trump has consistently emphasized the need to “fix what’s broken” and balance the federal budget. As of February 2024, U.S. national debt has surged to $36.2 trillion—double the amount from 15 years ago, largely due to pandemic-era stimulus. This flood of liquidity has fueled inflation and driven interest rates upward, increasing debt servicing costs. The average interest rate on government bonds has more than doubled—from 1.61% in 2021 to 3.28% today—and annual interest payments have reached $1.158 trillion, surpassing the U.S. defense budget of $886 billion.
Trump and his economic team have repeatedly identified bond yields as a top priority. Despite market turmoil caused by his shifting tariff policies, insiders say he pays little attention to the stock market. In a congressional address last month, Trump boasted that “Treasury yields have fallen beautifully.” Treasury Secretary Scott Besant also stated that the administration is closely monitoring 10-year Treasury yields and is weighing policy actions to bring them down. Since Trump's return, the 10-year yield has fallen from 4.8% to around 4.2%.
Analysts say the proposed accord is reminiscent of the 1985 Plaza Accord, in which the U.S., Japan, West Germany, France, and the U.K. agreed to intervene in currency markets to weaken the U.S. dollar. Participating countries sold dollars and bought their own currencies to ease U.S. trade deficits. This led to over 50% appreciation in the Japanese yen and Deutsche mark over two years, while the dollar plummeted.
For Japan, this triggered long-term economic consequences. The yen surged from 250 to 120 per dollar, prompting ultra-low interest rate policies that created asset bubbles in real estate and stocks. After 1989, interest rate hikes and property market crackdowns caused the bubbles to burst, and Japan entered a prolonged downturn known as the “Lost Decade,” which continues to cast a shadow.
If the Mar-a-Lago Accord materializes, South Korea could face mixed consequences:
Short-term benefits might include a stronger won, lower import prices, and reduced production costs.
Long-term risks could include job losses and export slowdown if Korean firms shift production to the U.S., and reduced foreign exchange liquidity if reserves become overly reliant on illiquid long-term U.S. bonds.
Opinions are divided on whether the plan is politically and economically viable. Skeptics argue that unlike 1985, today’s global economic instability makes multilateral participation unlikely. Even Miran acknowledges the scale of transformation involved, stating that "if implemented, this plan would rival the launch or collapse of the Bretton Woods system." He also concedes that convincing allies to shoulder the costs through tariffs or bond purchases may be unrealistic.
Still, some analysts believe the plan—in a modified or partial form—could be pursued if U.S. allies calculate that participation is cheaper than facing escalating tariffs. In such cases, a diluted version of the Mar-a-Lago Accord could emerge through bilateral negotiations over time.
Opinions are divided on whether the plan is politically and economically viable. Skeptics argue that unlike 1985, today’s global economic instability makes multilateral participation unlikely. Even Miran acknowledges the scale of transformation involved, stating that "if implemented, this plan would rival the launch or collapse of the Bretton Woods system." He also concedes that convincing allies to shoulder the costs through tariffs or bond purchases may be unrealistic.
Still, some analysts believe the plan—in a modified or partial form—could be pursued if U.S. allies calculate that participation is cheaper than facing escalating tariffs. In such cases, a diluted version of the Mar-a-Lago Accord could emerge through bilateral negotiations over time.
Triple-Digit Tariffs: U.S.-China Trade Tensions Escalate Beijing Courts ‘Trump-Friendly’ U.K. for Cooperation Prospects for Korea-China-Japan Trade Collaboration All But Collapse
The U.S.-China trade war, ignited and fueled by President Donald Trump, is escalating by the day. As the U.S. pursues increasingly extreme tariff measures, China has responded in kind—pushing bilateral tariff rates into the triple digits. Beijing has declared its intent to take a hardline stance against Washington’s trade pressure, while also actively seeking new alliances with countries like the United Kingdom. The moves signal China’s intent to build its own trade defenses and counterbalance mounting U.S. protectionism
On April 14, international media including Reuters reported that the trade tensions between the U.S. and China—centered on tariffs—remain unresolved, as Beijing refuses to back down and has opted for a head-on confrontation. According to Jacob Gunter, lead economic analyst at German think tank MERICS, in an interview with CNN, “President Xi Jinping believes China is in a long-term struggle with the U.S. and its allies and has prepared accordingly. He has accepted the challenge, and China is ready to fight.”
Indeed, China has escalated its resolve for a protracted fight, raising global market anxiety. In a meeting with Spanish Prime Minister Pedro Sánchez in Beijing on April 11, Xi Jinping declared, “For over 70 years, China has advanced through self-reliance and struggle. We’ve never depended on the generosity of others and are unafraid of unjust suppression.”
On the same day, China’s State Council Tariff Commission announced an increase in retaliatory tariffs on U.S. goods from 84% to 125%. The Commission stated that if the U.S. continues to impose tariffs on Chinese goods, China will not negotiate but simply ignore them—implying that with current three-digit tariffs already making trade impractical, further increases are largely symbolic.
As part of its counter-strategy, China is actively seeking to build alliances. On April 11, Chinese Vice Minister of Commerce Ling Ji met with UK Trade Secretary Douglas Alexander in Beijing, declaring, “Multilateralism is the only solution to the challenges posed by unilateralism and protectionism.” Ling added that China’s actions are necessary to defend national interests and that Beijing is ready to collaborate with the UK to strengthen the multilateral trade system and bring more certainty to the global economy.
According to China’s Ministry of Commerce, the two officials exchanged views on Trump’s tariff policies and agreed to expand cooperation in trade, investment, and supply chains. The Chinese Ministry of Foreign Affairs stated that Secretary Alexander expressed willingness to work with China on free trade and market openness.
Still, analysts doubt whether this dialogue will translate into meaningful collaboration. The UK has historically maintained a close trade and defense alignment with the U.S. In February, Prime Minister Keir Starmer visited Washington to discuss a potential economic deal with Trump that would grant the UK tariff exemptions. Trump praised Starmer as a “strong negotiator,” suggesting that the U.S. and UK could sign a true free trade agreement that eliminates tariffs altogether.
As of this month, Britain has been included in a favorable 10% reciprocal tariff regime, shared with Brazil, Singapore, and Australia—significantly lower than the EU (20%), Japan (24%), and South Korea (25%). Following this development, Starmer stated that the UK would take a calm and practical approach, prioritizing diplomacy over retaliatory tariffs. As a result, London lacks the political incentive to side with China in a full-scale trade conflict.
The previously discussed "East Asia Trilateral Alliance" between South Korea, China, and Japan now appears unlikely. On March 30, Seoul hosted the 13th Trilateral Economic and Trade Ministers' Meeting, where ministers from the three nations discussed pushing forward a trilateral free trade agreement (FTA) and posed for a symbolic group photo. This raised concerns in Washington that Seoul and Tokyo might pivot toward a united front with Beijing in response to U.S. tariff pressure.
However, both South Korea and Japan have since entered into bilateral tariff negotiations with the U.S., dispelling those concerns. On April 7, U.S. Treasury Secretary Scott Besant announced via social media that Trump had directed the launch of trade talks with Japan. That same day, Trump and Japanese Prime Minister Shigeru Ishiba held a 25-minute phone call and agreed to begin negotiations. Ishiba emphasized that “unilateral tariffs are limiting Japan’s investment capacity,” and urged for “mutual cooperation that includes investment expansion rather than conflict.”
On April 8, Trump also held a phone call with Acting South Korean Prime Minister Han Duck-soo, during which the two sides discussed tariffs and agreed to maintain constructive dialogue on economic cooperation and trade balance.
In a subsequent social media post, Trump wrote that he and Han discussed:
