Deutsche Bank Warns of US Capital War Risk

Deutsche Bank’s Head of FX Research, George Saravelos, warned that the proposed US “revenge tax” could escalate trade tensions into a capital war.

The proposed US “revenge tax” could significantly alter capital flows, impacting foreign confidence and possibly increasing market volatility.

The proposed “revenge tax” by the Trump administration could transform a trade war into a capital war. According to George Saravelos of Deutsche Bank, the tax’s introduction could impact foreign investors’ after-tax yields. Foreign institutions may view the tax as discriminatory, affecting capital flow into US Treasury securities. Reduced yields may trigger a withdrawal of foreign investments in US assets.

The proposed tax (Section 899) could significantly reduce the after-tax yield for foreign investors in US assets, slashing effective yields by close to 100 basis points.

Foreign investor confidence might decline, affecting risk assets like BTC and ETH, though no direct chain reactions have been seen. Market confidence could further wane. Historical data suggests that when trade policies limit foreign investment, risk-off sentiments tend to rise.

George Saravelos highlights the potential for significant financial shifts, with capital withdrawn from the US, impacting yields. Cryptocurrencies, often seen as alternative value stores, may become more appealing to investors during fiscal tensions. The reaction of global markets to legislative changes warrants close monitoring.