USD Slips as Trade Tensions with China Reignite and Section 899 Tax Threat Looms

US Dollar Softens Amid Renewed Trade Tensions and Fiscal Uncertainty

The US Dollar Index (DXY) began the week under pressure, retreating as low as the 98.70 mark according to projections by ING analysts, amid a worsening risk environment and growing geopolitical friction with China.

Markets are increasingly concerned about the fragility of the US-China trade deal signed in Geneva last month, which, though still technically in effect until August 12, is now under visible strain. Recent rhetoric from both President Donald Trump and Chinese state media highlights dissatisfaction with unfulfilled trade promises.

Section 899 Tax Adds a New Layer of Risk

In addition to trade uncertainty, another emerging concern for the USD is Section 899, a “revenge tax” provision within Trump’s proposed tax legislation. The clause, if passed by Congress, would authorize up to 20% retaliatory taxes on residents of countries that implement discriminatory tax measures, such as Digital Services Taxes (DSTs) — now common across Europe, India, and Taiwan.

“Unless such taxes are withdrawn, the US could begin withholding tax on gross income like interest, dividends, and royalties starting next year,” ING notes.

This provision could trigger foreign divestment from US assets, further undermining the Greenback.

Short-Term Outlook for DXY

Market strategists remain cautious. A continued slide in global equities and further US policy uncertainty could see the DXY drift lower toward 98.70, according to ING. The Senate’s debate on Trump’s tax bill this week will be closely watched for market impact.

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