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Confidence in the US economy is plummeting as investors dumped government debt amid escalating concerns over the impact of Donald Trump's tariffs.
The interest rate on US bonds - traditionally considered a "safe haven" investment in times of crisis - spiked on Wednesday to touch the highest since February.
Sweeping taxes on goods being imported into the US from around 60 countries came into effect at midnight, while a tit-for-tat trade war between America and China gathered pace.
After the US went ahead with a 104% tariff on products from China, Beijing hit back with 84% levy on American products.
Stock markets have been falling sharply over the past few days in reaction to Trump pressing ahead with tariffs.
However, the sale of bonds - which are essentially an IOU issued by a government to raise money from financial markets - poses a major problem for the world's biggest economy.
Buying US government debt, or Treasuries as they are known, is viewed as a safe investment because the state will pay back what it owes.
But on Wednesday, the yield - or interest rate - on US bonds touched the highest level since February at 4.5%, making it more expensive for America to borrow money.
Some analysts suggested that the US Federal Reserve might be forced to step in if turbulence continues, in a move reminiscent of the Bank of England's emergency action in 2022 following Liz Truss's mini-Budget.
"We see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilise the bond market," said George Saravelos, global head of FX research at Deutsche Bank.
"We are entering uncharted territory," he said, adding that it was "very hard" to predict how markets would react in the coming days as the bond market suggested investors had "lost faith in US assets".
'US recession a coin toss'
Simon French, chief economist at Panmure Liberum, told the BBC that the Fed could decide to cut interest rates in a bid to protect US jobs by making it easier for businesses to borrowing cash as they face higher costs from tariffs.
He said it was a "coin toss" over whether the US would enter a recession.
This is defined as a prolonged and widespread decline in economic activity typically characterised by a jump in unemployment and fall in incomes.
JP Morgan, the investment banking giant, has raised the likelihood of a US recession from 40% to 60% and warned that American policy was "tilting away from growth".
Trump's introduction of tariffs, which are charged on goods imported from countries overseas, threatens to upend many global supply chains.
US-based companies that bring the foreign goods into the country will pay the tax to the government.
Firms may choose to pass on some or all of the cost of tariffs to customers, which could push up inflation.
Trump's plan is aimed at protecting American businesses from foreign competition and also to boost domestic manufacturing.
Questions remain over the scale and what type of investors are dumping US bonds.
There is been speculation some foreign countries, such as China which owns some $759bn of US bonds, might be selling them.
Mr Saravelos said: "There is little room now left for an escalation on the trade front. "The next phase risks being an outright financial war involving Chinese ownership of US assets."
But he warned: "There can be no winner to such a war. The loser will be the global economy."
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