“US Treasury Debt – The Great Intimidator: President Trump’s trade war, launched on “Liberation Day,” quickly collided with a more formidable force than foreign retaliation: the $27 trillion U.S. Treasury market. As yields surged and liquidity thinned, the bond market began flashing warning signs. A weak 3-year note auction set the tone, with 10- and 30-year auctions looming. Whether by design or by pressure, Trump took the offramp, pausing tariffs for 90 days. To understand what comes next, it’s helpful to frame the constraints now shaping policy: Tariffs still weigh on growth and inflation. Even after the freeze, substantial tariffs remain in place. Their persistence could drag on economic activity and add to price pressures. The US holds a weak strategic hand in a global trade war. Picking fights with major trading partners who also finance your debt becomes especially risky with a wide fiscal deficit and no credible plan to rein it in. China remains the central showdown. Beijing views US trade actions as part of a broader containment strategy. While China faces its own economic pressures, its leadership has signaled a high tolerance for economic pain. In contrast, Trump faces the shorter political time horizon of elections and voter sentiment.”
Morten W. Langer
