> Instead of being seen as a safe haven, U.S. debt itself started to look shaky
There's also a more basic answer to why US debt got more expensive. There is no such thing as a "trade deficit". You cannot import something without exporting something else. That something else, in almost 100% of the situations, is dollars. What do you do with dollars, if there's nothing you want to buy? You buy debt. So, every trade deficit ultimately tends to export debt. We have long known that government debt is proportional to trade deficits.
The problem with tariffs, in this context, is that they are being used as a signal that we don't want to sell people dollars anymore, explicitly saying "no more trade deficits". In doing so we are choking off the supply of dollars used to buy debt (rather abruptly), so that US debt is chasing fewer dollars and has to give a bigger yield as a result.
What's worse, is that because we are signalling that the tariffs are meant to be permanent, and we're seeing reciprocal tariffs as a result. When that happens, it means that using dollars in the future will purchase fewer US goods, so the time discount of money has gone up too. Further driving up yields to make bonds attractive enough to sell.
US debt was mostly being bought because "safe". The US being seen as politically and economically stable and the center of the world. Right now that argument is much harder to make.
And meanwhile there is always a lot of US debt that needs to be rolled over (i.e. re-issued to a willing buyer.)
Except for the data point of today's 10-Year Treasury Auction which had a normal, usual result.
Why do people keep repeating this nonsense? 2008? Every "recession" for the last 50 years? Nobody was under the impression that the US was economically stable. Go press max on the 10 year bond yields and tell me what you see. The "crash" puts it to where it was not even a year ago. For 10-year bonds.
The main point is during every recession for the last 50 years, the US government has never missed a loan payment on its debt, even during recessions. It has a near perfect credit score.
Compared to every other developed democracy in the planet, the US is politically unstable with its two party democracy.
Trump is just a product of this right-vs-left volatile maximalism, represented as woke-vs-maga, which is fully on-track to get worse. Try guessing who will be the next woke maximalist and maga maximalist candidate, and what Executive Orders it leads to, which the US is pretty much ruled by at this stage.
Good luck with flip-flopping maga and woke Executive law as a country.
I'm not sure where you've seen left maximalism in the government so far. You get a choice between right and "let's not disturb the status quo" centrish party. There were barely any strong left-ish opinions for quite a while. That whole idea of a conflict seems really artificial, looking at the news from the outside. Let's hear about the left once someone actually manages to force through things like: more residential buildings overriding nimbys, progressive tax without trivial loopholes, wealth tax, kill gerrymandering, federal level build-out of trainlines, etc.
> the US is politically unstable with its two party democracy
How about Netherlands and Belgium? With the exception of PM Rutte (NL) in the last 8 years, normally Netherlands has a relatively unstable democracy, compared to Germany or France. Their gov'ts collapse relatively quickly, then call elections. (To be clear, [Semi-]Presidential systems like France, US, and Brazil don't have the concept of "calling elections", so they are perceived as more stable.) And don't even get me started about Belgium: Their political system is a mess. It is like 2.1 countries in one: The French speaking side, the Dutch/Flemish speaking side, and a tiny German speaking minority. At some point (2011?), the went more than 500 days (FIVE HUNDRED DAYS!) without an elected gov't, while they were negotiating to form a new one. And both NL and BE and facing serious challenges with newly powerful hard right parties (Hello Geert Wilders!). This "woke-vs-maga" story isn't only in the US. Many highly developed nations in Europe are struggling with similar divisions in their political systems.
Somewhat tangential: I see two serious flaws with the US democratic system: (1) The supreme court is too powerful. If you look at many other highly developed, democratic nations, their supreme court (or equivalent) is much less powerful, and they are no worse for it. I have seen that in both semi-presidential and parliamentary systems. (2) The US president is too powerful.
But the country is polarized. So this woke/MAGA maximalist seesaw is what you’d expect if democracy was working.
The two-party angle really has very little to do with it, because there’s not that many “true moderates” in the electorate. Research shows that the “center” is comprised of people with a heterodox mix of views, but they’re not particularly mushy about any specific view.
Well I can accept that argument, it's interesting, but I think I want to disagree. I'm not American, I'm French and I live in China, and in both countries I know so well, the population seem to have many spectrums: young vs old, moderates vs angry, rich vs poor, nature-driven vs success-driven, tired vs energetic etc. So with all those dimensions, France ended up with 12 parties at the presidential election, from royalists to anarchists, going through greens, communists, centrists etc. China ended up with one.
France embraced the chaos and made it a point of pride, while China finds it absolutely terrifying and unproductive - but my point is that the population is exactly the same, scarily similar, in all its funny diversity, but the system is not a mirror of it, just an awkward model built on compromises: France wants to maximize representability and China wants to maximize order.
The US system is pragmatic: need to win, need to give the people a feeling of choice but not give them any sort of real power of structural change, and they split on a strange line, for most of the world, that I have even trouble to describe myself. I think Trump pleases people there because he pretends to be a structure reformist, which sounds fresh.
It's not the people who can't be diverse politically exactly, it's more complex.
The 2 party system has existed for the vast majority of the time the country has been around. Now isn't even the most polarized period of it (though it's certainly up near the top). It's not always worse the next round but it's not always better the next round either.
As a card-carrying Whig party member I take offense to this. US has had periods of 3 parties, where the 3rd party ousts the 1st or 2nd eventually and we're back to two party, though that's more 1800s.
This is a product of duopolistic parties AND social media algorithms. Outrage. Outrage gets clicks, gets money, gets votes.
The C and the I are at war, R is stuck in a vietnam in Ukraine and South Africa is unstable .Leaving Brazil, which yes, brazil and India alone may hold up a stable reserve currency .
Is it? They have some intra-government spats, but I hadn't heard that this threatened the stability of the whole country yet.
> which yes, brazil and India alone may hold up a stable reserve currency.
Also several other countries which joined the last year or are in the process of joining. I believe at some point, the official name was also changed to BRICS+
I seriously doubt Brazil will keep it up if Trump follows through with his threat. Honestly I'm surprised Brazil hasn't been hit hard yet. Brazilian taxes on american products can approach 100%. One for me and one for the government, as we say. A "reciprocal" 10% tariff against brazilian goods is just comical to me. I wish I was paying just 10%.
The biggest things that our dumb oligarchs here profit from are almost 0 or zero.
It's only the shit that we want to buy retail on Amazon US that are crazy expensive. And a big chunk is ICMS, that is state wide, not federal tax.
On top of that DHL charges a premium.
I know because sometimes I can buy directly using my prime subscription my beloved Nintendo games (that I hope I can buy directly from Asia now and cut one big middleman).
Brazil's deficit in the last decade accumulates hundreds of billions USD already, but only benefits a few. Yet as a good dogs we feel relieved that is only 10%. But you forget our biggest export products are already 35% on top what was before (steel).
This is a oligarchy fight that will splat on everyone, including my eggs since we quintupled the exports to cover someone's asses.
By the way, why do we need to buy expensive ethanol abroad since ours is cheaper, but in my state ethanol is never cheaper than gasoline?
Having dollar being the worlds currency is not necessarily a good thing. Yes, you can borrow at low interests rate for a while. But guess what? Those are still debts. And eventually rates rise due to inflation. Now you have hollowed out your industrial base and you are stuck with tons of debts.
Even if dollar gets weaker, better to have less debts and more industrialization
Inflation and the "hollowing of your industrial base" are not inevitably connected, and in the case of the USA, have almost no connection to each other at all.
This is all correct, but it's a first principles explanation that doesn't explain why US bonds, and in particular the 10-year note, spiked today. Yes, eventually excessive tariffs would have that result. They literally hadn't even taken effect yet. So this doesn't explain the bond motion today.
Someone was dumping, we don't know who or why. But the answer to that question is a lot (a lot) more important than people realize, and certainly more so than the immediate market motion or tariff policy.
Honestly if the answer was "The PRC was unloading bonds to send a message" that's sort of the best option, as they have limited wiggle room to continue to do so without wrecking their own financial situation.
If it's "The market as a whole lost confidence in US debt", then we're fucked no matter what Trump does next.
The problem is that China holds only 2.6% of US Debt as of February 2025. Can they leverage that small a percentage to make a market move like that? Especially assuming they didn't dedicate all of their holdings to that action?
You know what the answer is. It’s the global system dumping US debt. Its not like someone knew THIS would be the specific smoke signal that Trump would see and say “oh, lets pump the brakes”
Reversing idiotic decisions after not being able to explain away the backlash they caused is kind of his thing and many people recognized it and expected it before the tariff pause.
I think it’s largely irrelevant now. The cats out of the bag and any country holding large amounts of t-notes and facing hostility from the US will dump them to get Trump to back off.
> we are choking off the supply of dollars used to buy debt (rather abruptly), so that US debt is chasing fewer dollars and has to give a bigger yield as a result
Well, also, the holders of our debt now need liquidity. So they sell this famously-liquid asset we've been selling them for decades.
It's usually not "dollars." It could be any investment or service that could be bought using dollars. And calling foreign investment an "export" is just confusing.
> You cannot import something without exporting something else.
This is incorrect when your national currency happens to be the global reserve currency. All it requires is for the other country to be willing to accept dollars in payment.
[ EDIT: even that's wrong. All it requires is someone being willing to accept dollars, either in payment or as part of a currency exchange. ]
Exporting dollars is exporting something. Combine a constantly depreciating dollar with constant rates of trade and you could end up in a steady state.
However, we define trade deficits to exclude financial transactions for various reasons.
Normal economics does not talk about "exporting currency". You generally buy stuff with currency, which when the seller is in another country happens to mean that dollars (probably) move across borders and thus in some odd sense the currency is exported. But this is really not what is generally said in this context. Exporting stuff normally means providing goods and services to willing buyers in other countries.
Normal economics almost certainly does talk about exporting currency. It’s a key point in freshman macro economics, and central to modern keynseian theory. And while there are some solid alternative to keynes, I doubt that even hayak would claim that you can’t export currencies.
Maybe my google-fu is not that great today, but I could no reference to exporting currency online that was about the concept that paying for imports was exporting currency.
You’re not going to see it used in such terms because of how economics defines trade. However you will see examples that make it clear currency is a commodity subject to supply and demand when you look into exchange rates. https://www.investopedia.com/ask/answers/041515/how-does-bal...
Trade networks allow for stable equilibriums with no individual country having equal trade with any other county. To simplify, A on net sends money to B, and B buys stuff from C with A’s currency, C then buys stuff from A in A’s currency returning that money to A. However, people want to operate in their native currency and there are a lot more than 3 countries in the real world so you end with intermediary currency exchanges changes going on. In theory supply and demand steps in to balance things, in practice cash flows rarely actually sum to 0.
> Normal economics does not talk about "exporting currency"
International finance is almost entirely about balancing the current and capital accounts [1].
The trade deficit is just one part of the current account [2]. Zeroing out the trade balance ceteris paribus requires a change in the capital account, i.e. foreign ownership of domestic assets and/or domestic ownership of foreign assets. If we’re just reducing the current account with tariffs, that means reducing both. Necessarily. This is one of the closest things to a law economics offers because it’s based on identities. The only run-around to it is the reserve account printing domestic currency, and we know how that goes.
Normal economics misses so many things because of narrow minded mathematical models. Like wealth and income distributions or the fact that currency is just another good with its own supply and demand.
I read it accurately. I just don't agree that "paying someone in a different country with my currency" is what is typically, normally meant by "exporting stuff".
The real issue is people are still treating this reactionary buffoonery as if it's a trade policy that warrants critique. It isn't. Trump is a fucking idiot and he has surrounded himself with other fucking idiots and they and the reactionary base of fucking idiots they've created are cheering him on for doing fucking idiot things.
A journalist successfully reverse-engineered the likely formula used to arrive at the figures for each nation, and it's not only implemented stupidly, it's also wrong from first principles. It's the same thing an actual school child might come up with if you asked them to. This is the same kind of "economic policy" cooked up by dumbasses on reddit who sincerely believe they are qualified to "fix US trade."
If our congress wasn't also packed full of ineffectual liberals and other fucking idiots, he'd be impeached by now for sheer incompetence.
It's the same issue we had in the last Trump admin. This nonsense is elevated to undue credibility by serious people discussing it seriously. It shouldn't be debated, it should be mocked, relentlessly, mercilessly, cruelly. As should Trump himself, as should his supporters, as should his sycophantic followers. Mock, belittle, make fun of, bully, parody, just continuously until every single one of these people refuses to approach a microphone.
It's especially such a farce because what do they expect? If trump said the sky is green and the ocean is red, you'd find scores of these useless faux-intellectuals trying to "prove" the truth, and each data point of evidence would simply be met with various forms of "no it isn't! The sky is green! The ocean is red!"
In their world, any "evidence" to the contrary must be manipulated or misinterpreted, because as we all know the sky is green, the ocean is -- oh, he said it's yellow now? And the sky is red? Hah, of course! We knew it all along, it was the plan, stupid!
And meanwhile...
Most of the democrats' tiny minds struggle to operate outside of a context of rigid rules and procedures. A context of arguing a point and getting at least some degree of fair debate in return.
But this is another age of populism. It doesn't matter what you argue, on either side. Debate transforms, serving only to transmit your message to your side, ideally while inspiring them and demoralizing the enemy. It matters that you seem confident and powerful while you say whatever you're saying. It matters that you seem invincible and indefatigable.
Their world won't be back for quite some time, assuming something at all like it sticks around. They'll keep operating like robots, not understanding why an excellent diss or crude mockery matters more than 1000 additional volumes of "proof" about something in contention.
These are loyalty tests. You prove you belong to the ingroup if you show you believe preposterous things. That's how cults and religions work.
We think this is stupid because it kinda is, but this behaviour is part of the human traits and possibly is adaptive behaviour to enable the very possibility of us living in large societies.
It's a great comment thank you. The part about the changes that would have enabled us to scale as society is really brilliant. I've read a bit about this in historian theories but the focus is often very material (probably because that's what you have evidence of).
I've always been in awe at the (absolutely crazy if you ask me) concept of money. The fact that we accept to give up possessions or time in exchange for the promise that anyone in the future will provide something equivalent because we just show some token/proof (which in itself are intrinsically valueless: sticks, stones, minerals, papers, now bits...).
We've been educated to be a bit suspicious and maybe show a slight contempt for it, probably to avoid being inelegant and also particularly because a lot of big owner of it are seen as not necessarily deserving of it.
But from an evolutionary perspective it's absolutely stupefying. And at its core its extremely positive. It shows absolute trust in our peers. It's probably one of the few behavior that really binds us together.
One could argue that it's the actually one trait that really distinguish us from other animals.
> I've always been in awe at the (absolutely crazy if you ask me) concept of money. The fact that we accept to give up possessions or time in exchange for the promise that anyone in the future will provide something equivalent because we just show some token/proof (which in itself are intrinsically valueless: sticks, stones, minerals, papers, now bits...).
No offense intended, but I think the way you're explaining this is a little overly silly. Value credit was a natural evolution from the barter system and it makes perfect sense. If you wanna run down to the 7/11 for a slushie, do you want to bring a $10 bill, or a live chicken? I definitely vote $10 bill, especially because there's a non zero chance the cashier wouldn't want a chicken anyway, even if it's technically worth enough to trade for a slushie. Money just streamlines this whole process and makes even exchange for goods infinitely more efficient for all parties involved, and I think that's why virtually every organized society we've found evidence of has some type of currency, going back thousands of years.
Now, that's not to say I don't agree that the monetary system as it exists is borderline a crime against humanity. Capitalism and it's various knock-on effects, starting plus or minus with colonialism depending how you want to slice it, is, I think, the most horrific thing we've done to each other in our entire history as a species. But I don't think that's an indictment of money strictly speaking.
That's the thing here. We're so used at the concept of money that you described that it's very hard to reconcile with what money really is.
You can take any introductory banking system course and it will tell the same story. (I recommend Economics of Money and Banking by Perry G Mehrling)
It's not really a finished exchange.
Money represent a debt.
It's a one sided exchange against the promise of the completion of the other side of the exchange in the future (by someone else in this case).
It's like the amount in your bank account is not really money. It's a debt from the bank: the promise that it will deliver this amount as cash if you ask. (M1)
And money is so liquid that we never think about it that way. Except during hyperinflation periods. And bank account are so solid that we think about them as cash. Except during bank runs.
As a side note, the theory that barter really meaningfully took place is being challenged as there is no real evidence of this.
Looking at the fine print of bank accounts, I would assume they completely absolve themselves of responsibility after a catastrophic event (call it C-Day). Or maybe they defer to FDIC insurance which guarantees I will have at least $250,000 after C-Day.
That said, as a consumer, I have no comprehension of how that would actually work. Do I get my guaranteed money 7 days after C-Day or 6 months after C-Day?
If an EMP blitzes my bank's electronic hard-drive records, is it my responsibility to prove I had X dollars in the account? If so, how? I can easily print a statement, but a statement clearly easily be forged. If it's the bank's responsibility, is there any guarantee they maintain physical and up-to-date records? Is there any regulation mandating they keep such records?
What happens if hyperinflation occurs and the 250,000 guaranteed by the FDIC is enough to buy a week's worth of groceries?
There's a lot of unknown variables and potential fragility in the system.
In other complex realms like software engineering, we get evidence that those complex systems really only have the budget to build the "happy path" and lawyers fight the cases when customers get damaged by the "unhappy paths."
It seems like our monetary system is on the happy path and very few times have the unhappy paths been tested.
It's the age were who control the country is the one with most money, not votes, and because company bribery is accepted, don't matter how much Trump get mocked, social media algorithms aren't going to allow that to breach other bubbles, something is clearly wrong when politians ask for money note votesz it isn't a democracy anymlre
It's the age were who control the country is the one with most money, not votes, and because company bribery is accepted, don't matter how much Trump get mocked, social media algorithms aren't going to allow that to breach other bubbles, something is clearly wrong when politians ask for money note votesz it isn't a democracy anymore
Literally the funniest thing about it is that LLMs conjure this "solution" when asked to deal with trade deficits using tariffs. It perfectly possible that one of Trump's people just asked ChatGPT and they implemented the answer.
Also the love affair with tariffs comes from a guy that wrote a book with his ideas and in that book he made up economic expert to support his views. (Ron Cara)
The guy he's referring to is Navarro, who invented an economist named Ron Vara to cite in his pro tariff book. He made up hi source using an anagram of his name, that's batshit crazy.
Sadly, this go-round it's Gen X more than Boomers. We voted for Trump disproportionately compared to other age cohorts. I'm embarrassed on behalf of my idiot friends from high school.
There's also a more basic answer to why US debt got more expensive. There is no such thing as a "trade deficit". You cannot import something without exporting something else. That something else, in almost 100% of the situations, is dollars. What do you do with dollars, if there's nothing you want to buy? You buy debt. So, every trade deficit ultimately tends to export debt. We have long known that government debt is proportional to trade deficits.
The problem with tariffs, in this context, is that they are being used as a signal that we don't want to sell people dollars anymore, explicitly saying "no more trade deficits". In doing so we are choking off the supply of dollars used to buy debt (rather abruptly), so that US debt is chasing fewer dollars and has to give a bigger yield as a result.
What's worse, is that because we are signalling that the tariffs are meant to be permanent, and we're seeing reciprocal tariffs as a result. When that happens, it means that using dollars in the future will purchase fewer US goods, so the time discount of money has gone up too. Further driving up yields to make bonds attractive enough to sell.