Since the beginning of this year, the United States has continuously imposed tariff threats on multiple countries globally, attempting to construct a "American victory" narrative through these tariffs—as if imposing tariffs equals American success.

On the surface, the US average effective tariff rate has surged to 18.6%, reaching the highest level since 1933. In July 2025 alone, US tariff revenue reached $29.6 billion, with the full year already exceeding $150 billion.

However, the fiscal gains from tariffs have not translated into currency strength—while the US has been reaping substantial tariff income, the dollar has continued to weaken.

Since the beginning of the year, the US Dollar Index has fallen nearly 10%. In the first half of this year, the dollar posted its largest mid-year decline in 50 years.

This advance and retreat reflects a deeper issue: what has America lost while gaining tariff revenues?

**Observation One: The Dollar's Appeal to International Investors Has Declined**

Even the most spectacular stage performance needs an audience. For the dollar, the world's largest financial stage, the most important audience is international capital.

Now, some audience members appear to be quietly leaving.

The most direct indicator is the US Dollar Index. Since the beginning of this year, the dollar index has fallen from approximately 109 to about 98, a decline of nearly 10%. Prior to this, the dollar index had been in an upward trend.

Looking at key points this year, the US government's tariff policies have accelerated this decline. On April 3, after the US government announced the imposition of so-called "reciprocal" tariffs globally, the dollar index dropped 1.6%, marking the largest single-day decline since 2022.

The Dollar Index, created in 1973, is a weighted exchange rate of the dollar relative to six other major currencies. The euro has the largest weight at 57.6%, followed by the Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

When the dollar index rises, it means global capital is more willing to flow toward the dollar. When it falls, it indicates the market believes dollar investment opportunities are not as attractive as before.

For international investors, if the dollar depreciates, even if asset returns remain stable, converting back to their home currency results in shrinkage, naturally leading to reduced holdings or even selling, which further drives the dollar down.

The latest data from the US Treasury Department confirms this trend. In the first six months of this year, US net capital inflows decreased by nearly 20% compared to the second half of last year, with two months even showing net outflows.

Capital flow preferences are also reflected in the dollar index. Since the beginning of the year, the dollar index has generally declined, depreciating against all six major currencies. The further down the curve, the more the dollar has fallen and the more the corresponding currency has risen.

It's evident that the euro, Swedish krona, and Swiss franc have appreciated more than the weighted dollar index, while the yen, Canadian dollar, and British pound, though also appreciating against the dollar, have shown weaker gains than the other three currencies.

In other words, relative to the yen, Canadian dollar, and British pound, funds prefer flowing toward the Swedish krona, euro, and Swiss franc.

In fact, several global asset management companies, including RBC Global Asset Management and Vanguard Group, have concluded that the dollar has entered a downward cycle.

The dollar's decline centers on the keyword "relative." Currency exchange rates are relative concepts, and compared to some global economies, America's advantages are weakening.

Previously, the dollar maintained its elevated position due to many factors. However, tariffs and other factors are breaking this advantage.

One fact is that the US government's first tax expenditure bill includes a "discriminatory" tax rate specifically targeting foreign investors. Section 899 stipulates that certain foreign investors' investment returns in the US will be subject to additional taxation on top of existing rates, potentially increasing by up to 20%, making it more difficult for foreign investors to conduct capital transfers in the US.

Therefore, we see that relative to the dollar, many European and Asian currencies have appreciated this year.

For some investors, the dollar's appeal is quietly undergoing changes.

**Observation Two: US Stocks and Dollar Declining Simultaneously, Breaking Risk Hedge Patterns**

Generally, the dollar and US stocks exhibit some negative correlation. Over the past 15 years, the dollar and S&P 500 have mostly moved in opposite directions, with an average correlation coefficient of approximately -0.3, meaning when the dollar rises, US stocks often fall somewhat.

When market risk aversion rises, the dollar strengthens while stock markets typically retreat. Conversely, when risk appetite increases and investors return to stock markets, the dollar often weakens.

This year, when the US frequently threatened global tariff increases, this pattern was broken. The dollar and US stocks were sold off simultaneously during the same period, with the entire US capital market shrouded in panic sentiment brought by tariffs.

According to relevant statistics, since 1973, situations where the dollar and US stocks both declined more than 7% within three months have been rare, and 2025 is one of them.

Previous analysis shows that today's US stock market more closely represents globalized and technology companies. Tariffs directly impact American companies' global supply chains, and the market responds directly—on the day the US government announced "reciprocal" tariffs, the three major US stock indices plummeted, with maximum declines of about 6%, setting the largest single-day decline in five years.

According to research institution Econofact's assessment, the dollar weakened simultaneously this time due to policy uncertainty in the United States.

In their latest research, since the 21st century, global policy uncertainty has caused changes in dollar trends 10 times, with 8 instances leading to dollar strengthening and only 2 causing dollar weakening.

One was when the Trump administration first took office in 2017, and the other is these recent months.

The underlying issue reflects that the US has consistently hoped to reverse manufacturing decline through tariff increases, both in 2017 and now, but the reality is that US manufacturing still lacks advantages—US manufacturing productivity growth rates have been declining for more than ten consecutive years.

The simultaneous decline of both the dollar and US stocks reflects this problem.

Over the past six months, the Dow Jones Index—which better represents manufacturing companies among the three major US indices—has changed from the most stable to showing the largest decline. July's latest data further confirms manufacturing weakness, with the Institute for Supply Management (ISM) manufacturing PMI index falling to 48, below the 50 threshold, indicating overall manufacturing contraction.

For the current United States, imposing tariffs not only fails to make it a manufacturing powerhouse but also undermines the dollar's status as a global reserve currency.

When the US imposes heavy tariffs and disrupts global free trade, countries worldwide reduce trade interactions with the US, naturally weakening trust in the dollar.

Mid-year, a survey by global market research consultancy CoreData showed that institutional advisors managing nearly $5 trillion in assets are reducing investments in US markets, with nearly half of respondents indicating they are cutting long-term allocations to dollar assets.

Maintaining the dollar's advantageous position conflicts inherently with using tariffs to guide manufacturing reshoring. If this conflict continues, the lose-lose situation for both the dollar and US stocks may persist.

**Observation Three: Frequent Treasury Yield Inversions Reflect Concerns About the US Economy**

For a long time, US Treasuries have been among global investors' favorite assets, serving as safe-haven assets within the dollar sphere.

However, this year's situation is somewhat different. Based on the 10-year versus 3-month Treasury spread, the yield curve has frequently inverted, occurring 12 times so far.

Specifically, what does yield inversion mean?

Generally, long-term debt yields exceed short-term debt yields because investors lending money to the government for longer periods naturally expect greater returns. When long-term debt yields fall below short-term debt yields, their difference becomes negative, termed an "inversion."

Since early February this year, after the US government began imposing tariff threats, long-term debt yields gradually fell below short-term debt yields. This situation occurs because investors worry the economy might deteriorate and tend to buy long-term debt in the short term, pushing long-term debt yields below short-term debt yields.

Simply put, inversion indicates insufficient confidence in economic growth.

This year's yield curve has another distinctive feature—repeated inversions. Since the beginning of this century, calculated by the 10-year versus 3-month Treasury spread, curve inversions have been infrequent, yet this year has seen 12 inversions within approximately six months.

Repeated "inversions" indicate the market's recurring doubts. In dollar markets, investors believe future economic uncertainty is substantial.

Trend-following hedge funds in the market are directly impacted. These funds are most effective during long-term unidirectional asset price movements—either continuous rises or falls—but this year's frequent market expectation swings without clear trends inevitably cause severe losses.

Relevant data shows that in the first half of this year, Man Group's flagship fund declined 7.8%, with the entire trend-following fund sector averaging a 9.6% decline, potentially creating the worst annual performance since 1998.

A core driver causing repeated market expectation swings and frequent yield curve anomalies is America's heavy fiscal pressure.

Recently, the US Commerce Secretary mentioned on a program that monthly tariff revenues would help offset deficits, making "America greater."

However, numerically, these tariff revenues are far insufficient to alleviate fiscal pressure. Even accumulating the recent month's approximately $29.6 billion in tariff revenue over ten years yields only about $3.55 trillion, roughly equivalent to the projected ten-year deficit increase from America's major legislation, but still far short compared to the cumulative federal deficit of approximately $22.7 trillion over the next ten years.

America's budget deficit this year is approximately $1.9 trillion, about 6.5% of economic output—excluding economic recession periods, this figure represents a historically high level.

Expanding fiscal deficits mean gradually increasing risks for holding US long-term bonds—because markets expect America might need to borrow more money to fill deficits in the future, they want more interest as compensation.

From a medium to long-term perspective, this directly leads to rising US Treasury yields, increased government borrowing costs, and elevated financing costs for businesses and individuals, creating pressure on economic growth. Long-term, this risk accumulation undermines dollar attractiveness.

Since this year, the US government has consistently maintained the view that tariffs are powerful leverage capable of moving everything.

From current observations, tariffs lacking support points cannot leverage much and instead harm themselves.