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US Tariffs: A Fatal Mistake Triggering Global Repercussions

Global supply chains are on the verge of breaking, and US bond yields are spiking—clear signs that US-China relations have entered an irreversible collapse. The recent spike in rates stems directly from the trade war, revealing a critical failure in the US strategy to suppress yields.

The partial U-turn on tariffs by the US isn’t a strategic shift—it’s damage control. The aim to lower bond yields has backfired spectacularly. China’s retaliation was swift and brutal: raising tariffs on US goods to an astronomical 84%. This isn't just economic maneuvering—it's a declaration of full-scale trade war.

As of April 10, US exports to China are grinding to a halt. Trump’s 125% tariff marks an escalation, while other nations were granted a 90-day reprieve. This is now a direct economic confrontation between the world’s two largest economies. In China, sentiment has shifted dramatically—American goods are not only too expensive, they’re now seen as a national security risk.

For US consumers, Trump’s tariffs are effectively a tax hike. The poorest households will be hit hardest, with potential cost-of-living increases of up to 6%. Middle-income families could face $3,000–$5,000 more in annual expenses. This impact is based on the original tariff proposals—actual costs could be higher now.

Worse, alternatives are scarce. Goods from Vietnam, for example, could rise by over 40% without a rollback. US dependency on Chinese goods is deep: some sectors rely on China for over 99% of imports, while only about 10% of China’s imports from the US are hard to replace.

This war is already hurting US businesses. Companies like Conning, Intel, and Lam Research generate over 20% of their revenues from China—now at serious risk. We could see falling wages, job losses, and stagnation as American firms lose market access.

Delta Airlines has already withdrawn its full-year guidance due to the uncertainty. As the cost of doing business rises, margins will be squeezed, and domestic demand could plunge. All this is happening while the dollar is falling and bond yields are surging—clear signs that confidence in US debt is waning.

Yields on the 10-year and 30-year Treasuries recently broke past 4.5% and 5% respectively—a startling repudiation of US bonds as a safe haven. Rather than declining during a recession, yields are rising, pointing to either forced selling due to margin calls or a fundamental repricing in a world of persistent inflation.

This has huge consequences. If the latter is true, investors now demand much higher returns to hold US debt. Either way, it's terrible news for both Wall Street and Main Street.

The US economy is now showing classic stagflation symptoms: falling growth and rising inflation. The bond market is swinging violently—on par with 2020 pandemic levels—undermining investor confidence in the stability of US debt.

For leveraged hedge funds involved in the popular "basis trade," this volatility is a ticking time bomb. These trades depend on stable yields. But when bonds suddenly plunge, losses mount, margin calls kick in, and funds are forced to liquidate.

The bottom line: this trade war is not just a geopolitical squabble—it’s a major macroeconomic disruption. The US may have just cornered itself with a tariff policy that is crippling its own economy while fueling global instability. The damage, both to financial markets and to everyday Americans, is already unfolding—and it may only be the beginning.

Tariffs Trigger Financial Shockwaves

When Trump launched his tariff war, he didn’t just target China—he cracked open Pandora’s box. The fallout is now shaking the US bond market, and the ripple effects are intensifying. If you want to see financial chaos captured in one chart, here it is: in just three days, the 10-year yield surged 60 basis points while the S&P 500 tanked over 8%. That’s not normal.

The Reverse Wealth Effect Begins

This is the classic reverse wealth effect in action—people feel poorer, so they cut spending. Rising yields mean higher loan payments. Falling stocks erode confidence. Even if it’s just a “paper loss,” the psychological damage is real. If this spiral continues, the US consumer—the backbone of the economy—could buckle. That’s when the bottom really drops out.

Trade War Exposes Structural Fragility

The deeper consequence? Tariffs are dragging hidden structural issues into the light. When you slap tariffs on the world, don’t be surprised when countries export less to the US. That means they earn fewer dollars—and with fewer dollars, there's less incentive to hold US Treasuries.

China’s Silent Financial Retaliation

Rumors are already swirling that China is quietly offloading Treasuries. Their holdings have fallen below $750 billion, and there's strong speculation Beijing is liquidating more in retaliation. They've already restricted investment into US companies, and the next step could be telling institutions to avoid Treasuries altogether.

A Financial Iron Curtain Rises

This isn't just a trade war anymore—it’s a financial decoupling. An economic iron curtain is rising between the US and China. And if that wall goes up across both trade and capital flows, the shockwaves will be global.

Washington’s Bigger Plan: Global Economic Encirclement

Now let’s zoom out to the bigger picture. According to Scott Besson, the US is pursuing a broader strategy: rallying allies—Japan, the EU, South Korea, India—into a trade coalition to counter China. It’s no longer just “Fortress America.” It’s a push to build a global fortress that locks China out of key markets.

Trying to Force China’s Economic Rebalance

But this new global tariff regime is dangerous—not just for China or the US, but for everyone. The idea is to encircle China economically, forcing them to rebalance their economy away from exports and toward domestic consumption. The US, meanwhile, wants to onshore more manufacturing.

The Flaw in the Grand Strategy

The goal? Get China to consume more and depend less on trade surpluses. Sounds logical—but the approach is pure coercion, and that’s where the plan could implode.

Lessons from Russia: Coercion Backfires

Remember the G7's attempt to isolate Russia? It didn’t work. It made Russia more self-reliant and strengthened its alternative alliances. This move against China could have the same boomerang effect. And when China does rebalance and becomes a true consumption giant, they won’t be rushing to buy American products.

The World Is Watching—And Getting Nervous

And here’s the thing: the rest of the world is watching. If the US can turn the economic screws on China, what’s to stop them from doing the same to others? That’s why many nations are still trading with Russia—they don’t want to be next.

Containment Might Break the System

Trying to isolate Beijing through a global trade wall might not just fail—it could destabilize the entire system. So the big question is:

Will China’s backlash cause an even bigger sell-off in the US bond market? And can Besson’s plan to contain Beijing actually succeed—or will it blow up in America’s face?

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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