Trump’s tariffs cause the sale of US government debt

Confidence in the US economy is decreasing as investors have discarded government debt against the background of increasing concerns about the impact of Donald Trump’s tariffs.

The interest rate on US bonds – traditionally considered an investment in “safe asylum” in times of crisis – has increased sharply on Wednesday.

The skill of taxes on goods imported into the United States from about 60 countries have entered midnight, while the trade war between America and China gathered the pace.

After the United States continued with a 104% tariff for products from China, Beijing went back with an 84% fee for American products.

The stock markets have dropped sharply in the last few days to react to Trump to progress with tariffs.

However, the sale of bonds – which are essentially Iou, issued by the government to raise money from the financial markets – is a major problem for the largest economy in the world.

Buying government debt or treasures, as they are known, is seen as a safe investment because the state will pay what it owes.

But on Wednesday, yield – or the interest rate – the US bonds touched the highest level than February 4.5%, making it more expensive for America to borrow money.

Although the percentage is at the same level as a few months ago, interest rates for the US loan over 10 years have increased sharply over the last 48 hours of 3.9%.

Some analysts have suggested that the US Federal Reserve may be forced to intervene if the turbulence continues, a reminder of the Emergency of the Bank of England in 2022 after Liz Truss’s mini-budget.

“We do not see any other option for the Fed, but to get involved with emergency purchases of American treasures to stabilize the bond market,” said George Saravelz, a global FX Research leader at Deutsche Bank.

“We are entering an unexplored territory,” he said, adding that it is “very difficult” to predict how markets will react in the coming days, as the bond market suggests that investors have “lost faith in US assets.”

Simon French, the chief economist at Panmure Liberum, told the BBC that the Fed may decide to reduce interest rates in an attempt to protect jobs in the United States by facilitating the business to borrow cash as they face higher costs.

He said it was “throwing coins” whether the US would enter a recession.

This is defined as a prolonged and broad decrease in economic activity, usually characterized by a jump in unemployment and decline in income.

JP Morgan, the investment banking giant, increased the likelihood of a recession in the United States from 40% to 60% and warned that US policy was “tilting from growth”.

The introduction of Trump’s tariffs, which are charged on goods imported from countries abroad, threatens to increase many global supply chains.

US -based companies that introduce foreign goods in the country will pay the government’s tax.

Businesses can choose to hand over some or all customer rates to customers, which may increase inflation.

Trump’s plan is aimed at protecting American business from foreign competition, as well as increasing domestic production.

The questions remain above the scale and what type of investors they throw away US bonds.

There are speculations that some foreign countries, such as China, who own about $ 759 billion in bonds in the United States, can sell them.

Saravelos said, “Now there is a little room for escalation on the trade front.” The next phase risks being a frank financial war, including Chinese ownership of US assets. “

But he warned: “There can be no winner in such a war. The loser will be the global economy.”