The trade war escalated by President Donald Trump this April is set to cost the American economy dearly. The dollar has continued to weaken relative to most other major currencies, while bond yields, which usually move in lockstep, have risen steadily, even for long-term debt. While a stagflationary shock (short-term inflation and economic contraction) is now underway, the odds of a genuine US financial crisis are rising.

Meanwhile, Trump has questioned the position of Federal Reserve chair Jerome Powell, publicly pressuring him to cut interest rates to accommodate the effects of the administration’s tariff policy. This has led investors and commentators to consider the possibility of a full blown “emerging market” (EM) crisis playing out in the United States: an accelerating run on the dollar; the dwindling of the capital inflows that “fund” the federal government; ballooning deficits and borrowing costs; the imposition of capital controls, and ultimately a default on US bonds.

At present, a fully-fledged US fiscal crisis still seems like a remote contingency. But elsewhere, the outlook is more dire. Many of the countries subjected to the “reciprocal tariffs” are developing countries of the Global South. These are nations that have, over the years, built trade surpluses with the United States. Even after the ninety-day “pause” announced on April 9, these countries are still subject to a universal tariff rate of 10 percent, as well as in some cases (autos, auto parts, aluminum) sectoral tariffs of 25 percent.