While headlines are fixated on tariffs and trade spats, a more dangerous mechanism may be quietly unfolding under Donald Trump’s second presidency. Italian economist and journalist Federico Fubini lays out a disturbing yet well-documented argument: the real price of Trump’s economic strategy may not be paid by Americans, but by Europeans. And it won’t come through customs duties — it will come through debt and inflation.
Trump recently attacked the Federal Reserve for spending $2.5 billion on office renovations. Petty? Perhaps. But it’s not about the renovations. It’s a smokescreen for a much larger project: placing the Fed under political control and reshaping U.S. monetary policy to accommodate unsustainable levels of public debt — without touching taxes or spending.
Over the past 25 years, the U.S. has moved from budget surpluses under Clinton to chronic deficits. The cycle of crisis (9/11, Iraq and Afghanistan wars, financial meltdown, COVID-19, and the new industrial policy) has been followed not by consolidation, but by structural decay. The political system, Fubini argues, is no longer able to agree on serious fiscal repair.
As a result, the U.S. now accounts for almost two-thirds of the world’s sovereign debt — $37 trillion out of $59 trillion globally. Half of all new debt issued in 2025 will be American. With no political appetite for tightening belts, Trump has a different idea: export the cost of debt by weaponizing monetary policy, trade policy, and the dollar itself.
Tariffs become a kind of indirect tax on foreigners (though paid by U.S. consumers). Stablecoins are encouraged, since their reserve requirements push issuers to buy Treasury bonds. Most radically, Trump seeks to neutralize the Fed’s independence so it can suppress interest rates — even in a full-employment, high-inflation environment.
This would make the cost of servicing debt (soon nearing $1 trillion annually) more manageable. Inflation would further reduce the real value of debt and boost tax revenues. According to investor Ray Dalio, this is a form of undeclared default: creditors get repaid in nominal dollars, but those dollars are worth far less in purchasing power.
And here’s the twist: Europe is now the largest foreign holder of U.S. debt. Surpassing China and Japan, European central banks, institutions, and individual savers collectively hold around $2 trillion in U.S. Treasuries. Belgium and Luxembourg alone account for $827 billion. Add France, Ireland, Germany, the U.K., and investments via Switzerland, and the exposure becomes staggering.
Even more surprising: after Trump took office again in January — and as the dollar lost 13% of its value against the euro — European investors didn’t retreat. They bought an additional $400 billion in U.S. debt. Why? Fubini doesn’t pretend to know. But he points out that those investors have already suffered massive losses from the weaker dollar.
If the Fed loses independence and Trump installs a loyalist, inflation is likely to surge. A further 10% drop in the dollar’s value could wipe out another €200 billion from European portfolios. Meanwhile, Americans would benefit: lower real interest payments, rising tax revenues, and no domestic political cost.
This is the core of Fubini’s argument: Trump’s attack on the Fed is also an attack on Europe. It’s not a military threat, nor a diplomatic crisis. It’s a quiet, technical financial operation — but one that could do more damage to European economies than any trade war.
The European response? So far, silence. Disunity. Complacency. Many of the countries that sought early trade agreements with Trump — France, Belgium, Japan — are among the biggest buyers of U.S. debt. In doing so, they are financing a strategy that may turn against them.
In the end, Trump may not be aiming for coherence. But his plan — such as it is — seems to be working: offload America’s debt crisis onto its biggest creditors, by eroding the value of their investments and locking them into a system they helped fund.
Whether by choice or inertia, Europe has become the guarantor of America’s fiscal recklessness. And unless it finds a strategy to defend itself, the next act of this financial drama may end with a heavy European bill — in dollars no longer worth their name.