"Beyond Tariffs: The Real Battle for a New Global Economic Order"

Investing Strategies
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Introduction-“Beyond Tariffs: The Real Battle for a New Global Economic Order”

Ever since Donald Trump launched his first presidential campaign, I’ve closely followed his economic agenda—especially his bold stand on trade. One of the early signs of his approach was visible when, during his previous term, the U.S. imposed retaliatory pressure on India over high import duties, including the famous case of the 50% tariff on Harley-Davidson motorcycles.

At first glance, these actions seemed like isolated trade disputes. But over time, it became clear that Trump’s tariff war was not just about individual products or countries—it was part of a much larger plan to reshape how the global economy works. After spending months studying these developments, I now believe we are entering a long-term transformation of the global economic system—and tariffs are only the surface.

Understanding the Global Balancing Act

Every country interacts with the world through two key flows:

  • Trade Flow: The buying and selling of goods and services
  • Capital Flow: Movement of money through investments (FDI, FII, etc.)

If a country imports more than it exports, it runs a trade deficit (like the U.S.).
If it exports more than it imports, it has a trade surplus (like China).

But trade doesn’t exist in isolation. Every dollar earned through trade eventually comes back as capital investment. This is why there’s a basic rule in economics:

Trade Account + Capital Account = 0
(A country’s total inflow and outflow must balance)

Why Some Countries Always Run Surpluses

Countries like China, Germany, and Japan consistently export more than they import. How?

  • They keep wages lower than worker productivity
  • They reduce interest rates to encourage production over saving
  • They suppress domestic consumption, keeping more money in the system

This high-saving model helps them run trade surpluses—but it creates imbalances globally.

3. The System Built After WWII

After World War II, world leaders set up a system in a meeting called Bretton Woods. The key decisions:

  • The US Dollar became the world’s reserve currency
  • America became the consumer of last resort and the destination for global savings

This meant the U.S. ran significant trade and fiscal deficits, particularly after the system’s end in 1971, so the world could continue exporting and saving in dollars.

But this dynamic has become unsustainable—and that’s why we’re seeing a push for change."

4. Why the U.S. Wants a Reset Now

The push to change the system, led by former President Trump and continued by his policy thinkers, is not just political drama. There are real reasons:

  1. Defense readiness is declining.
    Offshoring has weakened America’s manufacturing and military strength.
  2. Debt levels are exploding.
    Official debt is around $37 trillion, but future obligations could push this beyond $160 trillion.
  3. Too much dependence on foreign production.
    Critical sectors like semiconductors and pharma are mostly offshore. America wants to make these at home.

5. The Real Role of Tariffs

So, what’s the point of tariffs?

  • They are pressure tools, not long-term solutions.
  • They are used to force negotiations and reset global trade behavior.
  • They temporarily hurt American consumers too, which is why they won’t last forever.

Tariffs are just Step One. The real game is shifting global capital flows and production.

6. Capital Controls: The Bigger Battle

The United States is shifting its focus from just goods to capital flows. Here’s the new plan:

  1. Reduce the world’s reliance on saving in dollars over time**.**
  • Steer investment toward tangible American assets—like factories—beyond just financial markets
  • Redirect capital flows through potential U.S. sovereign wealth initiatives
  • Gradually weaken the dollar to boost export competitiveness

Thinkers like Michael Pettis, Steve Miran, and Michael J. McNair have outlined how these ideas could reshape the global economic framework."

7. Toward a New Global Economic Deal

A new framework, perhaps dubbed the Mar-a-Lago Accord, could emerge to reshape global economics, much like Bretton Woods. Its potential features:

  • Caps on persistent trade surpluses
  • A weaker dollar to boost U.S. exports over time
  • Phased tariff reductions if trade goals are achieved
  • Partial dollar link to commodities as a symbolic gesture
  • Controlled inflation to ease debt pressures, echoing post-WWII tactics.

8. China’s Likely Countermoves

China won’t accept this quietly. It may:

  1. Challenge U.S. tech dominance using open-source models
  2. Control critical materials like rare earths and chips
  3. Dump products into markets like India if U.S. doors close
  4. Set up factories in Europe to keep access to global buyers (BYD plant in Hungary)

China is also cautious not to repeat Japan’s post-Plaza Accord mistake, where easy money led to asset bubbles and long stagnation.

9-Impact on India: Not All Positive

India might seem like a winner here, but there are challenges:

  • Tariffs may hurt everyone , not just China
  • China may redirect exports to India , undercutting local industries
  • Strong foreign capital inflows could appreciate the rupee, hurting exports
  • India’s own capital controls (like high FII taxation) help protect its balance

India must tread carefully while building resilience in key sectors like defence, semiconductors, and clean energy.

10- The Road Ahead: Be Prepared

This is a multi-year, multi-country, multi-sector transformation. Predicting every outcome is impossible. But one thing is clear:

We are in a new regime. The world is changing fast. We need to:

  • Stay alert
  • Watch every move of big nations
  • Focus on self-reliance
  • Be cautious but optimistic

11. The Road Ahead: Be Prepared

What we’re witnessing today is not a temporary disruption—it is a long-term, multi-country, multi-sector transformation. Predicting exact outcomes in such a complex environment is nearly impossible. But one thing is clear: we are entering a new global regime, where the rules of trade, capital flow, and geopolitical influence are being rewritten.

As a technocrat with a keen interest in microfinance, global economics, and shifting geopolitical landscapes, I’ve been closely observing these developments since Donald Trump’s first campaign. My views here are the result of months of study, critical thinking, and real-world observation.

I believe this is a time for reflection, awareness, and open-minded discussion. These are my personal insights—but they are by no means the only perspective.

I invite you to join the conversation.
Feel free to share your thoughts, questions, or counterpoints in the comments section. Let’s explore this evolving story together.

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Sir what would be the mindset for long term investor who are thinking opportunity in pharma sector especially in Natco and Dr reddy. I bought yesterday also when Natco promoter itself are buying. I think gradual buying should be done because market will not wait for tariff day to give reaction. It will gradually correct pharma also. But as you say, these tariff are not permanent as it will also hurt american consumer, it’s just negotiations tool.

Sometimes there is lot of uncertainty in market. No business can survive 26% tariff in long term and business will become unviable. I donot know how US is going to survive the shock which trump is giving to other nation.

I also bought Ashiana housing yesterday considering tariff will not affect it much.

Every next footstep needed to place forward bring more toward darkness. Only God knows what I am doing is right or wrong.

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This statements seems to be appropriately reflecting the current scenario. I would tend to agree with this based on my study as well.

There would be major change in the way World Trade and Economy operates and this seems to the beginning.

Inward looking businesses like Banking, NBFC, Real Estate and Gold ETF could be helpful in this scenario, which are generally less impacted by global tariffs. Next wealth creators could be Banks, NBFC(s), Real Estate companies. AI oriented companies might add value to the portfolio in this scenario.

Again, I may be proven completely wrong in my understanding as things are changing fast. My knowledge is limited to Indian sectors only.

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Which crisis is more destructive, COVID 2020 market crash or the 2025 US Tariff war?

The COVID-19 pandemic was, without doubt, the most dangerous macroeconomic event our generation has experienced. It brought global economic activity to a grinding halt, froze supply chains, shuttered businesses, and created unprecedented unemployment and fear. It was a black swan event, an uncontrollable force of nature that governments and policymakers scrambled to contain.

Yet today, there is a rising narrative that the current wave of US tariffs poses a greater threat to the global economy than COVID ever did. Why does this fear persist, and is it justified?

The answer lies not only in economics but in psychology. One of the most dangerous phrases in investing and economic thinking is: “This time it’s different.”

In times of uncertainty, people tend to discard historical wisdom and succumb to the emotions of the moment, fueled by the constant churn of news and social media. These platforms amplify fear and greed, often drowning out rational, long-term perspectives.

Unlike COVID, which was an external, unpredictable event, the current US tariffs are man-made, deliberate strategic moves designed to influence trade balances, protect domestic industries, and gain negotiating leverage. While they do introduce short-term disruptions and uncertainty, they are ultimately tools that can be adjusted, negotiated, and reversed.

Still, many perceive these tariffs could lead to a lasting global depression. This pessimism is amplified by the memory of past financial crises and a tendency to believe that the current situation is uniquely dangerous. But history tells us otherwise.

During COVID, panic dominated the markets. Many fled equities, only to regret it later as markets rebounded sharply. Today, the same fear keeps investors on the sidelines, worried that this geopolitical and economic conflict might derail global growth permanently.

But this is how markets have always worked, cycling through panic and recovery, fear and opportunity. As the famous quote goes: “History doesn’t repeat itself exactly, but it rhymes.”

The biggest mistake investors make is believing that “this time it’s different.” In reality, it rarely is. Every crisis brings new headlines, new villains, and new anxieties, but the fundamental principles of market behavior remain consistent.

Smart investors don’t ignore risk, but they also don’t let fear define their strategy. They look to history not for identical patterns, but for perspective. Because when others are paralyzed by the noise, that’s often when opportunity is quietly knocking.

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I agree with most points raised by you.

The current atmosphere of fear is dominated by narratives of ‘this is the end of the post world war system’, collapse of world trade/trade wars, etc.
While some of these things may hold in the near to short term, the longer term i personally am more optimistic.

“The only thing that we learn from history is that we learn nothing from history”

We’ve seen similar tariffs implemented in the past by America and the consequences thereafter:

  1. McKinsey(a hero of Trump) tariffs of 1890:
    McKinley Tariff - Wikipedia
  2. Smoot-Hawley tariffs of 1930:
    Smoot–Hawley Tariff Act - Wikipedia

Both led to significant price rise (in the latter case exacerbating the Depression), fall of governments(interestingly both Republican as the current dispensation) and significant liberalisation under the subsequent new governments.

Trump, at the end of a day, is a businessman(debatably a very bad one :slight_smile: ), who quotes stock market rising as a sign of his great perfomance, his inner ring are mostly businessmen/capitalists who will all be hurt by tariffs.

Whatever his intentions, the reality of macroeconomics and likely pain for American consumers will cause him to eventually relent and either ease or reverse most of the tariffs and claim that he got America the best deal(most countries will offer tariff reductions and play along aligned with their broader economic and geo-political interests).

Further reading which i found interesting:

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We are in the cycle like 2003-2008. All commodities, real estate, industrials, defence will perform better than other sectors

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Why do you think so? Interested in knowing the thought process behind this?

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Before moving forward, I want to sincerely thank everyone who took the time to read, like, and share their thoughts on my post. As this was my first contribution to the forum, I’m truly encouraged by the thoughtful engagement it has received.

It’s clear that many of us are not just following the headlines, but are trying to understand the deeper, long-term shifts taking place in the global economic landscape.

Let’s continue the conversation with a few important updates and developments that add further context to the ideas we’ve been discussing.

The World is Listening: Tariffs Are Doing Their Job

As mentioned earlier, tariffs were never meant to be permanent—they are being used as a tool to bring countries to the negotiating table. A recent update from the U.S. Economic Council confirms this:

“Over 50 countries have reached out to the U.S. to negotiate.”

This shows that even before full implementation, the idea behind the tariffs is already working.

We should also remember that for many years, countries around the world have imposed tariffs on U.S. goods whenever it suited them. The current U.S. response is not just a reaction—it’s a planned move to push for fairer trade, with the long-term goal of lowering or removing tariffs on American exports, in line with Trump’s broader vision to “Make America Great Again.”

While China is clearly the main target, the European Union is also being challenged, though for different reasons. The U.S. believes that European countries have benefited from American military protection for decades without contributing their fair share. At the same time, they’ve enjoyed strong exports to the U.S. market.

Now, through tariffs, the U.S. wants to send a clear message: economic benefits and security responsibilities must go hand in hand. These actions are not just about trade—they are about rebalancing global partnerships.

Sharp Market Reactions Are Often Short-Term

The Indian market saw a deep correction today—a reminder that markets often react sharply in the short term when faced with policy shifts, trade uncertainty, or global economic signals.

While such corrections can feel unsettling, they are quite common during major global transitions. As mentioned earlier, we are in the midst of a multi-country, multi-sector reset, and volatility is part of this journey. The long-term direction only becomes clear after several short-term shake-ups.After all, Trump is a businessman—and the stock market matters a lot to him and his circle.

From my perspective, India could emerge as one of the biggest long-term beneficiaries of this global realignment. Indian entrepreneurs are often more agile, adaptive, and resourceful than many global peers. With government initiatives like PLI schemes, Make in India, and the advantage of competitive labour costs,etc, India is well-positioned to attract global manufacturing and supply chain shifts.

Furthermore, the Indian government is actively working to strengthen India–U.S. trade relations, and the possibility of a bilateral agreement could significantly enhance India’s position—especially as China faces high tariffs and growing scrutiny from the U.S.

Recession in the U.S.? Maybe Not So Fast

There’s growing talk of a possible recession in the U.S., but in my view, it may not be as likely or as immediate as many fear. Two key factors support this outlook.

First, U.S. job data remains strong, indicating a resilient labor market and steady consumer demand. That, in itself, provides a solid cushion against a sudden economic slowdown.

Second, I recall Donald Trump, in one of his recent campaign speeches, hinting at a major income tax relief package—something that could mirror the 2017–2018 corporate tax cuts that significantly boosted the U.S. economy and stock markets. If a similar policy is implemented again, it could serve as a strong counterbalance to recessionary pressures.

Conclusion: A Strategy Unfolding in Real Time

When we look at everything together, it becomes clear that this is not a random series of events, but a well-scripted economic strategy by the U.S.:

Strong trade rhetoric from Trump -----Tariff timelines announced ----- Reciprocal threats from other countries ---- Actual tariffs imposed ---- Countries line up to negotiate ---- Final goal: reduced import duties on U.S. goods and increased pressure on China

While much of the focus has been on China, it’s important to note that Europe is also feeling the heat. For years, the European Union has benefited from U.S. market access and military protection, often without contributing proportionally. Now, the U.S. seems determined to rebalance these long-standing arrangements—both economically and strategically.

Through this unfolding playbook, the U.S. is not just reshaping global trade—it is also redefining its role and expectations within global alliances. This is a multi-year reset, and the world is being asked to adjust—on America’s terms.

These reflections are based entirely on my personal interpretation of recent events. I may be wrong—but I believe it’s important to connect the dots, reflect, and keep asking the right questions.

I would love to hear your perspective. Feel free to share your views, additions, or disagreements in the comments. Let’s continue this important conversation together

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Sorry to differ with your views. My 2 cents are as follows:
Don’t take as gospel truth the statement by Trump admin regarding more than 50 countries want to negotiate. We know that lot of rhetorics are going on.
Regarding tax cuts promised by Trump, who will benefit bu it? Only big corporates and HNIs. General public will not benefit. Rather they will suffer due to higher inflation, dollar weakness, job losses etc.
If EU was not bearing the cost for security, why America was continuing it? It could have refused to bear the expenses. But no, they wanted them as their allies during cold war. Now all of a sudden you realise it.
Many countries are not in a position to retaliate and so they are going to negotiate. That does not mean that tariffs are correct.
When US was giving assistance to Ukraine, dis they do it on the condition of getting it’s reserves? If not, is it not blackmail now?
You encourage them to fight Russia, now you are extracting your pound of flesh, even before Russia.
One thing I agree that Trump is a businessman. He is not a leader or statesman. And you forget the fact that in international relationship, business is not everything.
All things said, US has lost its political hegemony for few billions, which are yet to be quantified.

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Thank you for taking the time to read and share your perspective—I truly appreciate it. Differences in interpretation make discussions like these meaningful, especially on complex and evolving global issues.

You’re right that not every statement from political leaders should be taken at face value. My mention of the “50 countries negotiating” was more about the strategic use of messaging—which, real or rhetorical, is shaping reactions. As Donald Trump Jr. recently said, “those who come first to the table will benefit the most”, highlighting how pressure and incentives are being used together.

Looking at actual responses from the top 10 affected countries, we see that—aside from China—most are choosing dialogue over retaliation:

#Mexico, Canada, and the EU— are taking measured steps..
#Japan, South Korea, India, Vietnam, and the UK---- are seeking trade adjustments
#Taiwan–secured key exemptions through early investment commitments(TSMC - 100B investment)…

It’s evident that no country wants direct confrontation with the U.S.—a $30 trillion economy—-unless it leads to tangible long-term gains. So, while the rhetoric is loud, the actual global response has been largely cautious and calculated..

And yes, I fully agree—statesmanship must go beyond economics, and trust takes time to rebuild.

My post reflects one viewpoint based on current patterns, but voices like yours are essential for a well-rounded understanding. Let’s keep the dialogue going.

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Ukraine gave up its nuclear weapons on Security Assurance of the West
https://www.armscontrol.org/factsheets/ukraine-nuclear-weapons-and-security-assurances-glance

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Now two things will happen

  1. US will try to devalue US dollar to become competitive in export market.
  2. When US dollar will depreciate significantly, every other commodity will rise, which will benefit most of the asian countries or commodity rich countries.
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@manoj_shah_kumar Firstly, thank you for sharing the detailed analysis and background on this tariff fiasco. While I would concur with most of your points and US trying to change the world economic order, I feel below aspects can potentially reverse this:

a. US should have given time to their industry to manage their supply chain which got altered due to Covid. Considering that has not happened, we will surely see inflation impacting the Americans which may or may not sustain
b. Industry demand will take a hit which will impact the jobs across sectors increasing unemployment
c. Both these aspects will be very difficult for Trump to deal, which can alter his stance.

In the end , US is trying to reverse globalisation which has been one of the propaganda of western countries to gain access to developing markets. Globalisation can be delayed or restricted but cannot be reversed.

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Good discussion. Let me add my pov and some aspects which is not considered so far.

India may not be obvious beneficial as projected by MF veteran.
What Trump wants?
Probably no one knows. Isreal gave 0 tariff offers before 2nd April. And Vietnam offered 0 tariff, Not accepted and it seems they want something else.

  • Point 1 makes impossible for any country to crack deals with US. Than it’s obvious to form alliances with China for other countries like EU, Japan, India etc. Many believes US needs more China than China needs US. Also Trump’s undertone is to negotiate with China, A. Invitation of X on T’s shapath vidhi and recent comment that China will call and stuck deal with US.

  • One aspect not discussed is services. What is EU puts reciprocal tariff on services from Meta, Google etc. Current DTS are as below:

Countries with Digital Tax on US Tech Giants (e.g., Meta, Google):

Country Tax Rate Key Points
France 3% On digital advertising & marketplaces; targets big tech with €750M+ revenue
UK 2% On social media, search engines, marketplaces; £500M+ global revenue
Italy 3% Covers ads, platforms, data; €750M+ global & €5.5M+ Italian revenue
India 2% Equalisation Levy on e-commerce services by non-residents
  • U turn by his first tenure 2017 to 2021 – as per chatgpt|

Incident Year(s) Nature of U-Turn

Steel & Aluminum Tariff Adjustments 2018–2019 Country-specific exemptions granted

China Tariff Rollbacks (Phase One) 2019–2020 Tariffs delayed or partially reduced

Auto Tariff Threats on EU/Japan 2018–2020 Never implemented

French Digital Tax Retaliation 2020 Suspended before implementation

India GSP Negotiations 2019–2020 Partial flexibility shown

Let’s use this as education purpose and said by many no-one knows for surely as this is wip.

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Very interesting discussing. Might be worthwhile to hear Professor Damodaran’s thoughts on the current scenario as well.

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I am a long term investor. However, I have done lot of resetting of my portfolio in March and early April. When a long term investor turns trader, he is either acting in panic, or is thinking he is going to outsmart the market :smiley:
In these rather drastic changes, I have more or less stuck to the conviction that in this imbroglio, the defence will be able to keep its head above water. Food, meds and defence are, and not necessarily in that order, our top priorities, whether as individuals or as countries. In food ITC and Tata Consumer are there, but I have always found these consumer stocks expensive. Natco was making my mouth drone, but can’t dare buy it again for fear of Trump.
I have not let go off, or have added to small cap defence stocks.
Take the example of Ukraine, they are talking in terms of millions of drones. Shipbuilding takes years. DRDO/HAL are going round in circles in producing one fighter. So, my preference would be makers of small, repeatable, short life-span items. I have not really researched the defence sector, so I will be grateful if somebody can bring to light such companies.
I believe most are in the same situation as I am, in panic despite putting up a brave face. So, let serious analysis flow. Anything that makes us feel more certain of our footing in this uncertain terraine would be oh so welcome.

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My two bits. A fair warning. I have not discussed any sector or the stocks in this note. It is in general about the latest imbroglio.

I have always advocated that the Bangladeshi workers/maids need not be hounded, but instead given work-permits. This way they won’t have the temptation to procure fake documents and become citizens. Of course, those involved in illegal activities may be dealth with.

It is a sort of process of osmosis. I am not clear about its theory, but what I am saying is that people will flock to the cities from villages because of better opportunities, and better life in general, real or imaginary.

This explains the rush to the US, England, Canada or Australia and all those dunki routes.

Same is the reason for the work to flow to the less developed parts of the world. What we bought in the Marks and Spencers stores in London more than a decade back, were made in Bangladesh. When I bought some shirts from the MS here, it is the same. The shirts are made in Bangladesh.

In 2008 or thereabouts, I joined two sites Elance and Guru. Both changed their names later. The first work that I got from there was writing 50 articles on psychology related subjects at a pitiable rate of $5 per article. But it meant $250 to me. At 43.30 rupees to a dollar, it meant ₹10825. It was really slave labour, but then I was reeling under an EMI of more than ₹10000 for my house.

Later when I got an opportunity to draft contracts, it meant $100 to $200 and sometimes even $300.

At that time, American lawyers on the same sites were working at $250 per hour. So, my clients were enormously happy with me. It was logical for them to gravitate to ‘workers’ like me.

But how good or bad was I for the Americans? It is simple logic that if people like me were not there, the work would have gone to the US based lawyers. In fact, some lawyers from India started bidding for contracts at $20 and even $10. I gave up.

This is the logic in the American companies having their back offices in India. Hiring American workers is just not economical to them. The reverse is also true. We Indians are taking jobs away from the Americans. An American citizen has to pay for his grocery in US dollars. Two years ago my son-in-law had told me that a mango cost CAd 5 in Canada.

When Apple is made in China/Vietnam or India, they make Apple more affordable for the Americans.

Anybody with an ounce more brain than Trump would understand the reason why the American cars are being made in Mexico. If he thinks that by levying heavy tariffs, he will make the car industry move to the US, my heart really goes out to the American citizens who have voted this caricature to power. There are two main reasons. First, a car factory is not a trailer truck that can be shifted to a Dtroit just because Trump wants them to do that. And the second, as I have mentioned above, is cheap labour, land and all.

How will a car compete with a car made in one of the un-US country?

"The president and his economic officials have promised that, as a result of the tariffs, numerous manufacturing jobs will eventually be “reshored” to US, employing millions of Americans.

But Dan Ives, global head of technology research at financial services firm Wedbush Securities, told CNN’s Erin Burnett that the idea is a “fictional tale.”

US-made iPhones could cost more than three times their current price of around $1,000, he added, because it would be necessary to replicate the highly complex production ecosystem that currently exists in Asia.

“You build that (supply chain) in the US with a fab in West Virginia and New Jersey. They’ll be $3,500 iPhones,” he said, referring to fabrication plants, or high-tech manufacturing facilities where computer chips that power electronic devices are normally made.

And even then, it would cost Apple about $30 billion and three years to move just 10% of their supply chain to the US to begin with, Ives told Burnett on Monday. CNN has reached out to Apple for comment."

"https://edition.cnn.com/…/apple-iphones…/index.html….

Here of course we are trying to talk sense. But think of passnegers in a boat if the captain starts jumping around surrounded by his lackies, rocking the boat, making the bravest of the passengers fear for their life.
My idea is however much the boat may be rocked, is too late to change the way the world business has worked. One does hope, one man does not damage it to the extent that many lives are ruined before repairs are done.

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Its global man made event which will lead to change in world order
There can be two possibilities -
1.This could lead to globan industry shift to US making it strong manufacturing hub or
2. US will loose its global dominance and get struck in Debt trap which will lead to great depression.

Both are the broader positive and negative factor for US economy but one thing will definitely happen i.e slowdown of GDP and high inflation.This will impact seriously to global manufacturing sector and supply chain.Most effected country would be China because it is export driven economy and most of the export is consumed by USA, manufacturing in China can see huge deline in short run.
Countries like India may not face larger impact becaue India is consumption based economy and we export only 3% of our GDP to USA.But due to global economic slowdown and recession India will face headwinds in FII and FDI investments and also foreign borrowings.

Indian IT sector has larger exposure to US market ,so it may have slowdown and job cuts in future.

we need to recalibrate our global economic policies and also develop sustainable domestic growth.

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Why did Trump just pause tariffs?

There are many possible reasons, but the No. 1 reason seems to be related to U.S. Treasury bills, also known as U.S. bonds.

Aggressive selling of U.S. Treasuries can be compared to a nuclear option in the financial world. The movement in U.S. Treasury yields indicated that something was broken. For example, the 30-year yield jumped 56 basis points in just 3 days.

This selling is mostly from Japan, which is the largest foreign holder of U.S. Treasuries, followed by China.

Japan holds $1.1 trillion
China holds around $700 billion
Back in 2011, China held 28% of U.S. bonds owned by foreigners—now that’s down to 9%.

Usually, when equities are sold, people buy bonds, which causes bond yields to fall. But something strange happened in the last week—equities were sold, yet bond yields went up.

Higher bond yields mean a higher cost of borrowing for the U.S. government. The U.S. already has $33 trillion in debt and is paying hefty interest. If yields rise, so does the interest burden.

Also, as these bonds are sold, the U.S. dollar weakens, which can increase inflation.

It’s important to note:
The U.S. bond market is much larger than the stock market.
Bond market size: $50+ trillion
Stock market size: ~$40 trillion

Daily trading volume:
Bonds: ~$1 trillion
Equities: ~$500 billion

Sources:

www.youtube.com/watch?v=bMZHffNkyK4

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