I would say “Pearl Harbor” is a pretty good example. It’s dramatic, and wildly more violent than what we are going through now, but then if you back up just a few months from Dec 7, it was in August that FDR declared an embargo on oil to Japan, threatening their economy with strangulation and leaving them few options lest their government fall. Up until August it was just “tensions” between governments and a few epithets thrown around.
No, I am not making a direct comparison to then and now. I am saying that the Chinese economy is already under stress. I am saying that the US is taking dramatic actions which will make it worse. (I am also saying that some correction is warranted and that the Chinese have played us for saps for too long.) But there is a way to apply pressure and there is a way to throw a stick of dynamite into the negotiating table. Somehow this administration has decided “a stick of dynamite” is a preferable strategy. They are wrong.
Now I could list a thousand other instances of a government choosing a course of harmful action. These tariffs are one. King George and his tax on tea was another. (That was a tariff by another name, no? And it wasn’t violent - until it was.) The Civil War was started by some hotheads angered at an election, and it didn’t work out so well for them. The passage of Smoot-Hawley would be on this list somewhere as stupid and self defeating notions of “how to bring jobs back to America”.
And, let’s see, there’s Prohibition, which created the mafia. There’s the Berlin Wall, which was an open sore for the USSR for half a century. There was Nixon saying “I am not a crook” and thereby cementing the notion that he was a crook, there’s Dred Scott, and one of my favorites: Citizen’s United, which allows billionaires to overwhelm the US elections (not perfectly, but certainly with outweight influence), and more.
Yeah, there’s lots of history that says people react differently than you expect. This is surely one of them.
There is NO alternative to US treasuries or US $. NONE.
Not Crypto. Not Euro. Not Yen. Not Yuan. Not Gold. Not Peso. Not Rs.
In 2026, you will see US 10 Y come down drastically as AI productivity ramps, DOGE benefits show up and “big beautiful bill” sparks growth and stock market soars. Capital flows to innovative places with low regulation.
This day to day commentary from “experts” is silly. They are clueless. Lutnick is a bond expert and even he can’t tell you what will happen next day or next week.
Of course there are alternatives to U.S. Treasuries. You’ve just named a bunch of them. Those are all assets that people hold instead of just putting 100% of their money into U.S. Treasuries.
None of them are perfect substitutes that are identical to U.S. Treasuries, any more than they are perfect substitutes identical to each other. They all have different risks, different returns, different uses, a host of other differing characteristics. But they’re all alternatives to each other.
If the U.S. takes actions that harm its own economy and reduce confidence in U.S. markets, then demand for treasuries can fall. The U.S. economy is not guaranteed success, and the current Administration is not guaranteed to make infallible economic choices. Capital doesn’t just want low regulation and innovation - it also wants stable, rules-based systems with lots of visibility and predictability from the government. “Madman” approaches to economic policy negotiations aren’t necessarily a good fit for that.
Well, we can assume that people think that with 100+% tariffs, MUCH less stuff will be sold for a while. That means that China (and others) receive MANY fewer dollars each month, and that means that FEWER dollars need to be “disposed of” into treasuries/etc, which results in less demand, which results in lower prices for the bonds/notes/bills and thus higher rates.
That doesn’t mean the President’s tariff policy is smart. And it doesn’t mean that U.S. economy can’t be further harmed, or harmed in other ways. If you launch a trade war that you’re not prepared to fight or win, against every country on earth simultaneously across every product category, you might end up damaging the U.S. economy beyond any issues caused by the existing debt. Which would show up in the treasury bond market.
None of which, again, is relevant to the merits of the current tariff measures being implemented by the Administration. Nor is it relevant to the question of whether China can put pressure on the Administration in the prosecution of the trade war by utilizing its sizable store of Treasuries.
Just because “printing more and more money is not the solution” doesn’t mean that anything that the Administration happens to be doing is the solution, either.
If 12.3 year Treasury bonds are yielding 5.02% (due to the excess selling) and 12.3 year AAA corporate bonds are yielding 4.65% (due to the excess selling), there may be institutions out there willing to sell some of their corporates at the then higher prices (lower yield) and use that money to buy some treasuries at the then lower prices (higher yield).
Having $1.1 Trillion trade deficit is not a solution either. If you are thinking that asking China nicely is a solution, then you are living in fantasy land.
For things that are paid for as they are loaded onto the ship, then yes, it is indeed immediate. If 10,000 containers were held in Chinese ports (and it may likely be more than 10,000) already, that could already be billions of $ that haven’t been transferred into some Chinese entity’s account.
The point was that if the $200B of treasuries are sold to someone, and the cash then remains in some form of US$, then it is likely invested in similar stuff anyway. If the $200B in US$ are exchanged into a different currency, then perhaps not.
Yellen missed an important opportunity, Druckenmiller said, by not issuing more long-dated Treasury bonds when interest rates were, in the shadow of COVID-19, near zero.
“Janet Yellen, I guess because political myopia or whatever, was issuing 2-years at 15 basis points … when she could have issued 10-years at 70 basis points or 30-years at 180 basis points,”
Indeed - but declaring a trade war against every country on earth simultaneously, even the ones we have trade surpluses on, with little advance warning of the magnitude of tariffs and even less time spent preparing the economy to function with fewer imports, isn’t a good solution either.
