German Chancellor-in-waiting Friedrich Merz said Donald Trump’s tariff policies increase the risk of a financial crisis and advocated for a US-European free trade agreement, picking up on an idea that has drawn a hostile response from the US president.

“Yes, I’m hoping for a new transatlantic free-trade accord,” Handelsblatt cited Merz as saying in an interview. “Zero percent tariffs on everything. That would be better for both sides.”

The European Union has proposed reciprocal “zero-for-zero” tariffs on industrial goods to the US. Trump told reporters Monday that proposal wasn’t sufficient and suggested Europe should offset them by buying US energy.

Europe would have to focus on non-US markets if the US decided to bow out of global trade entirely, Merz said.

Read more: EU Races to Expand €2 Trillion Trade Club as US Links Sour 

Merz, who heads the center-right Christian Democratic Union party once led by Angela Merkel, reached a policy deal this week with the Social Democrats to set up Germany’s next government. Lawmakers are poised to elect him chancellor in May.

“President Trump’s policies are increasing the risk that the next financial crisis will hit sooner than expected,” Merz told Handelsblatt. “We Europeans need to come up with a persuasive response.”

This story was originally featured on Fortune.com

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• President Donald Trump introduced even more volatility and uncertainty into his trade war by exempting a range of consumer electronics and critical tech components. While that is expected to boost shares of US technology companies and the overall stock market, the bond and currency markets may be a different story.

President Donald Trump has shown that he can spark an epic stock rally, and exemptions to his “reciprocal tariffs” are likely to boost shares further, but bond and currency markets may be a different story.

On Wednesday, US stock indexes posted massive gains after Trump announced a 90-day pause on some of his steeper tariffs, though he hiked the rate for China. That helped claw back some of the $6 trillion in market cap that was obliterated when his “Liberation Day” tariff announcement shocked investors around the world.

In another twist, US Customs and Border Protection issued new guidance late Friday night on his so-called reciprocal tariffs, exempting a range of imports like smartphones, computers, semiconductors, chip-making equipment, flat panel TVs, and key tech components.

That’s likely to fuel more stock gains when markets reopen. In a post on X Saturday morning, Wedbush analyst Dan Ives called Trump’s exemptions the “best possible news for tech investors” that lifts a huge cloud over the sector.

However, recent dollar and Treasury bond selloffs showed that a tariff reprieve may embolden stock investors looking for quick returns, but it won’t reassure currency and bond investors looking for long-term safety.

Trump’s 90-day tariff pause on Wednesday did help Treasury yields come off their highs, but they resumed their climb later in the week as bonds sold off even while stocks rose.

That’s as US assets that were traditionally viewed as safe havens are losing that status amid a shift away from the dollar, with former Treasury Secretary Larry Summers warning that US bonds are trading like those of an emerging market nation.

“The market is rapidly de-dollarizing,” George Saravelos, global head of FX research at Deutsche Bank, said in a note this past week, adding that “the market has lost faith in US assets, so that instead of closing the asset-liability mismatch by hoarding dollar liquidity it is actively selling down the US assets themselves.” 

Having noted previously that the Trump administration appears to be encouraging the de-dollarization trend, Saravelos said it’s now playing out faster than anticipated. “It remains to be seen how orderly this process can remain,” he warned.

Similarly, Minneapolis Federal Reserve President Neel Kashkari also pointed to the dollar and bond moves as signs that investors are turning away from the US.

“Normally, when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time, I think, lends some more credibility to the story of investor preferences shifting,” he told CNBC on Friday.

To be sure, the almighty dollar’s demise has frequently been predicted in the past without coming true. And the de-dollarization trend has been going on for years, especially after Russia invaded Ukraine in 2022, triggering sanctions on Moscow that prompted other countries to question the safety of their own dollar holdings.

Since then, central banks have been loading up on gold, which has been hitting record high prices since Trump’s tariff shocks, while China, India, Brazil and other top economies use non-dollar currencies to settle more international transactions.

But tariffs have eroded the once-dominant view of “American exceptionalism,” while soaring debt may start to overwhelm the “exorbitant privilege” the US enjoys.

Meanwhile, the world was already having trust issues with America, as Trump has shocked traditional security allies and trading partners since taking office. 

Now, the rollout of tariffs that are the highest in more than a century—even as they are watered down repeatedly—could be the start of a lasting schism.

“The damage to the USD has been done: the market is reassessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarization,” Saravelos said in a separate note. “Nowhere is this more evident than the continued and combined collapse in the currency and US bond market as this week comes to a close.”

This story was originally featured on Fortune.com

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