Trump’s Tariff War Just Went Nuclear
In a Nutshell
Trump is using tariff threats against half of America’s trading partners as leverage to force the Fed to slash interest rates, since the government’s mandatory spending on interest, Social Security, Medicare, and veterans benefits already exceeds tax revenue. Foreign central banks are quietly exiting US Treasuries and repatriating gold, forcing the Treasury and Fed into “financial repression”: shifting debt issuance to the short end, compelling banks, stablecoins, pensions, and money-market funds to absorb it, and offering cheap loans to key holders so they don’t sell. The goal is to keep long-term yields from spiking, preserve the dollar’s reserve status, and hide the scale of monetary accommodation until after the September 16 Fed meeting.
These notes were generated by AI and may contain inaccuracies.
Donald Trump threatened to stop trading with about half of America's trading partners, including Mexico, Canada, China, Japan, Germany, South Korea, India, and Taiwan. This represents approximately $300 billion per month in trade. The rationale given is that some countries are paying half a point while the US pays four points, and if the US does not trade with them, they will not have money to pay their bills. The US could eliminate its trade deficit by simply not trading with deficit countries.
Lender nations are increasingly pulling their gold out of the US and walking away from US debt. A trade deficit occurs when countries sell America more than they buy from it. For 80 years, those countries bought US treasuries with those dollars, which allowed the US to continue buying from them. Trump threatening every country the US runs a deficit with means threatening countries that hold America's debt, which is the whole world.
The story presented is that the president is now at war with his own central bank and is using trade as a nuclear option to get lower interest rates. Each point in interest costs the US $650 billion, and the US should be at 1% or half a percent rather than 4%. Other countries are at half a percent despite the US preventing their bankruptcy.
The US government collects taxes as income, with three bills it cannot stop paying: interest on the debt, Social Security, Medicare, and veterans benefits. These add up to what Luke Groman calls the true interest expense, which is currently 105% of everything the government takes in. This spending is growing at twice the speed of tax revenues. Every time interest rates go up, the debt gets worse.
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