The recent market concerns about the trade war have been greatly reduced compared to April. The focus of the market has shifted from Trump’s tariff policy to changes in US fiscal policy.
A major fiscal and tax bill submitted by the US Republican Party has recently been passed by the House of Representatives and is now awaiting a vote in the Senate. The Republican Party calls it a “big and beautiful bill” involving tax cuts for companies and individuals, cuts in spending on health insurance and clean energy, increases in spending on border security and defense, and additional taxes on some foreign assets in the United States.
However, this huge bill of more than 1,000 pages is full of controversy. Trump and his staff, who strongly support the bill, claim that the implementation of the bill will promote economic growth in the United States, but opponents believe that the bill will greatly increase the already huge fiscal deficit in the United States.
We can only wait and see how this bill will be amended next and when it will be passed after the amendment. But what is certain is that the market has expressed concerns about the United States’ ever-expanding fiscal deficit and total debt.
Since 2022, the long-term Treasury yields of major countries in the world have continued to rise, among which the rise in U.S. Treasury yields is particularly obvious, which largely reflects investors’ concerns about the sustainability of U.S. debt.
From a longer-term perspective, a series of diplomatic and trade policies of the Trump administration have shaken the United States’ role as the leader and defender of the post-World War II international order. In the past few decades, the United States has attracted the largest inflow of foreign capital, estimated at US$26 trillion (S$33 trillion). In the future, some of these funds may flow back to their home countries, and some emerging market countries including Europe and China may also become the destination of capital flows.
