You think Trump’s tariffs are all about protectionism and geopolitics? Think again. Eric Demuth, CEO of Bitpanda, has a different take.
He believes these tariffs are less about shielding American industries and more about managing the U.S. government’s massive debt. It’s a “yield war,” not a trade war.
Another perspective
Demuth’s argument is simple yet intriguing. The real goal behind these tariffs is to slow down the U.S. economy, which in turn drives down the 10-Year Treasury Yield.
This yield is pretty imporant because it affects how much the government pays in interest on its debt.
With $9 trillion in Treasury bonds maturing by 2026, every basis point shaved off means billions saved over the next decade.
It’s like playing a high-stakes game of economic chess where the reward is huge.
Masterplan
As experts warn, tariffs are typically inflationary in the short term. So, how does this strategy make sense?
Demuth suggests that while tariffs might initially boost inflation, their large-scale implementation will eventually trigger a recession.
This recession would lead to lower inflation expectations and reduced demand for capital, ultimately driving down yields.
It’s a gamble, really, a recession strategy to refinance trillions at a lower cost and then revive the economy with stimulus packages.
Criticism
Critics, like billionaire Ray Dalio, warn that these tariffs could lead to global stagflation and alter U.S.-China trade relations significantly.
But Demuth draws parallels to the past, when quantitative easing and low interest rates fueled a risk-on rally.
We’ve seen this movie before, he says. Yet, until this refinancing cycle is complete, the market will remain tight, impacting risk assets like tech and crypto.
So, the next time someone says Trump is starting a trade war, remember, it might just be a yield war.
Pay attention to that 10-Year Treasury Yield Curve, because it holds the key to understanding this economic strategy. But let’s be real, guys, this is a high-risk game.
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