Investors are more concerned about the state of the US economy than ever before. The bond market shows a damning drop in all confidence in US assets. As trade tensions with China deepen, experts like Momentum’s Dr. This increased confusion is largely due to President Donald Trump’s record setting 104% tariff on Chinese goods. JP Morgan recently increased the odds of a US recession from 40% to 60%. This shift has raised alarms about the risks of creating a new financial instability.
The recent surge in tariffs has provoked China to retaliate with an 84% levy on American goods, further straining the already fragile trade relationship between the two nations. US stock markets have fallen off a cliff. Investors are starting to panic over what could be a long-term disaster resulting from the adverse effects of Trump’s trade policies. As the bond market faces ever increasing volatility due to rising interest rates, there are implications. Yields on US bonds have spiked up to their highest level since February, currently standing at 4.5%. Historically, investors have perceived US bonds as a crisis safe haven. Yet as confidence has begun to lose its luster, they are looking critically at the effective interest rates on these bonds.
At this rate, analysts warn, the Federal Reserve will have to step in since they’ll be left with few other options. Drawing parallels to the Bank of England’s emergency actions in 2022, which were prompted by Liz Truss’s controversial mini-budget, experts believe similar measures could be necessary in the United States. George Saravelos, a financial analyst, stated,
“We see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilise the bond market.”
To make matters trickier, China owns roughly $759 billion in US bonds. A continued thaw in policy and relations would take a huge toll on both countries’ economies.
The consequences of Trump’s tariffs go farther than short-term economic effects. They promise to severely strain global supply chains, affecting U.S.-based companies that import goods from abroad. These companies, and their customers, will be left to bear the burdens of the government’s new taxes. In the end, consumers are left paying higher prices and the companies are left unable to compete in global markets.
Saravelos warned of the risks of rising trade tensions going too far. He noted,
“There is little room now left for an escalation on the trade front. The next phase risks being an outright financial war involving Chinese ownership of US assets.”
The stakes are high for both nations, as Saravelos emphasized that “there can be no winner to such a war. The loser will be the global economy.”