Geoeconomics 2025: How U.S. Trade Policies and Foreign Investment Rules Impact Dollar Investments
U.S. tariffs and stricter foreign investment rules are reshaping dollar assets. Learn how 2025 trade policy changes impact global investors and Treasury demand.
Key Takeaways
✔ The “Liberation Day” tariffs and tighter foreign investment screening reshape the dollar asset environment.
✔ Foreign investors still hold about 32% of U.S. Treasuries, but tariff policies and FX risks are growing.
✔ OECD warns the full impact of tariffs on dollar investments has yet to unfold.
✔ Five major effects: dollar weakness, Treasury risk reassessment, structural changes in FDI, current account shifts, and portfolio adjustments.
✔ Investors should focus on diversification, FX hedging, and monitoring U.S. trade policies.
In Q2 2025, the U.S. current account deficit narrowed from $438 billion to $251 billion, falling to 3.3% of GDP. (Reuters)
At the same time, Washington introduced sweeping U.S. tariff policies under the “Liberation Day” framework and expanded foreign investment rules for sensitive sectors. These measures are central to the new geoeconomics 2025 landscape. They affect not only trade but also how global investors allocate into dollar assets, U.S. Treasuries, and other reserve holdings.
“Liberation Day” Tariffs and Stricter Foreign Investment Screening in 2025
In early 2025, the U.S. imposed a 10% baseline tariff on nearly all imports, with higher reciprocal rates for countries running large trade surpluses. (Wikipedia)
The Committee on Foreign Investment in the U.S. (CFIUS) expanded reviews of foreign deals in defense, tech, and infrastructure. Many investors now face tougher reporting requirements and mitigation conditions. (White & Case)
According to OECD, the effective U.S. tariff rate reached 19.5%, the highest since 1933. (Reuters) This signals a structural shift in U.S. trade policy, reshaping the environment for dollar investments.
Key Numbers Driving Dollar Assets: Deficits, Treasuries, and FX Trends
The narrowing U.S. current account deficit offers short-term support for dollar reserves. Yet the long-term impact of tariff policies on global trade remains uncertain.
Foreign investors hold about 32% of U.S. marketable Treasuries. (Federal Reserve) While this level is comparable to other major economies, concerns over tariff shocks and foreign investment screening are shifting risk perceptions.
Over $1 trillion in U.S. banknotes circulate abroad, about half of all U.S. cash in circulation. But after the “Liberation Day” tariffs were announced, the dollar index dropped sharply. (The Guardian) This highlights the growing vulnerability of dollar assets under current trade policies.
Key Indicators Affecting Dollar Assets (as of Q2 2025)
|
Indicator |
Latest Figure |
Implication |
|---|---|---|
|
U.S. Current Account Deficit |
-$251.3B (3.3% of GDP) |
Down from -$438B in the previous quarter, short-term support for dollar liquidity |
|
Foreign Holdings of U.S. Treasuries |
~32% |
Stable level, but rising demand for FX hedging due to policy risks |
|
U.S. Banknotes Held Abroad |
Over $1 trillion |
Roughly half of all U.S. currency in circulation, reinforcing the dollar’s global role |
|
Effective U.S. Tariff Rate |
19.5% |
Highest since 1933, raising concerns over global trade and dollar demand |
|
Dollar Index (DXY) |
Declined after tariff announcement |
Tariff shocks and policy uncertainty adding downward pressure on the dollar |
Expert Insights on U.S. Trade Policy and Dollar Investments
The Federal Reserve reports that while foreign holdings of Treasuries remain stable, U.S. trade rules and foreign investment restrictions add policy-driven risks.
The OECD notes the full shock of tariff policies has not yet been felt. Medium-term risks include weaker global trade and slower growth.
Russell Investments emphasizes that the mix of tariffs, tax changes, and deregulation in 2025 could affect corporate earnings, inflation, and the dollar’s role in global portfolios.
Five Ways U.S. Trade and Investment Rules Reshape Dollar Assets
- Dollar weakness risk grows – Higher import costs and FX retaliation weigh on the dollar.
- Treasuries reassessed – Investors still buy, but rely more on FX hedging against U.S. policy risks.
- Shifts in FDI flows – Sensitive sectors face barriers, while passive stakes remain attractive.
- Current account improvements – A smaller deficit supports dollar reserves, though sustainability is uncertain.
- Portfolio strategy shifts – Diversification, FX hedges, and close monitoring of U.S. trade policy are essential.
What’s Next for Dollar Investments: Timelines and Risks
Tariff adjustments are still possible as negotiations unfold. The Federal Reserve’s interest rate path will also shape Treasury yields and dollar demand.
Global retaliation remains a risk, with the EU, China, and Japan considering counter-tariffs. Meanwhile, central banks may diversify reserves away from the dollar, reducing its dominance.
Finally, U.S. domestic politics—elections and legislative battles—could decide how durable these trade and foreign investment rules will be.
U.S. trade policy and foreign investment screening are not just background factors. They are reshaping the fundamentals of dollar investments, from Treasury demand to FX stability.
Investors need to adjust by diversifying, hedging currency risk, and tracking U.S. trade and investment policy developments closely.
