Tariffs, Treasuries, and Trust: How U.S. Trade Policy Risks Undermining Its Own Credit

By Richard Joseph

When the United States imposes tariffs, the immediate focus is often on the price of imported goods or the political message being sent. But there’s a less visible, more dangerous ripple effect that rarely makes headlines: how trade policy decisions can undercut global confidence in U.S. debt.

For decades, America’s economic dominance has been reinforced not just by its military or consumer market, but by something far more subtle—demand for U.S. Treasuries. These bonds are the bedrock of global finance, considered the safest place to park capital in uncertain times. But that trust isn’t automatic. It’s built on the perception that the U.S. is a stable, reliable actor in global markets. That perception is now at risk.

Major foreign holders of United States treasury securities as of December 2024(in billion U.S. dollars)

The Trade Surplus Loop

Nations like China and Japan run persistent trade surpluses with the United States. We buy more from them than they buy from us. That imbalance leaves those countries holding billions in U.S. dollars. Instead of sitting on that cash, they reinvest it—most often by buying U.S. Treasury bonds. It’s a win-win: they support their own export economies by keeping their currencies relatively weak, and we benefit from low borrowing costs funded by that recycled capital.

But when the U.S. turns to protectionism, that cycle starts to break down. Tariffs reduce imports. Reduced imports mean smaller trade surpluses for foreign nations—and less reason to hold onto or reinvest in U.S. dollars. In economic terms, tariffs can shrink the very pool of foreign capital that props up our debt markets.

Confidence Cuts Both Ways

The United States is uniquely privileged to borrow in its own currency and at historically low interest rates. This is not a guarantee—it’s a reflection of confidence. Global investors trust in the U.S. not just because of the size of our economy, but because of its transparency, rule of law, and predictable economic policy.

When tariffs are levied not as part of a targeted strategy but as political punishment—as was the case with many of the Trump-era tariffs—that confidence wavers. Add to that the drama of repeated debt ceiling standoffs, growing political polarization, and isolationist rhetoric, and you begin to see why some nations may start looking for alternatives.

Indeed, China has already begun diversifying its reserves, slowly selling off portions of its U.S. Treasury holdings while increasing its exposure to gold and non-dollar-denominated assets. While these moves are incremental, the signal is clear: trust is eroding.

The Price of Independence

Some policymakers argue that reducing foreign ownership of U.S. debt would give us more independence. In theory, that sounds appealing. In practice, it’s a fantasy that ignores how our government is funded. Foreign holders currently own about one-third of the U.S. national debt—roughly $7 trillion. If they start walking away, we’ll still need to sell bonds. But to whom? And at what interest rate?

Higher interest rates would mean more taxpayer dollars going toward debt servicing and less toward infrastructure, defense, and social programs. It would also squeeze the broader economy, raising costs for mortgages, credit cards, and business loans. The cost of economic bravado could be a future of higher borrowing and slower growth.

Global Engagement Is Not a Liability

America’s integration into the global economy is not a weakness—it’s the source of our strength. Trade relationships create the very conditions that make U.S. debt attractive to foreign investors. If we fray those relationships through erratic policy, we don’t just lose trade—we lose the trust that makes our debt the safest asset in the world.

A coherent trade strategy and steady diplomatic leadership aren’t just good for exporters. They’re essential for preserving our creditworthiness in the eyes of the world.

In short: the U.S. can’t wall itself off economically without undermining the financial foundation that supports its global power. Foreign-owned debt isn’t a threat—it’s a vote of confidence. And that’s something we should be working to earn, not drive away.

Additional Data

📊 Foreign Holdings of U.S. Treasury Securities (1970–2024)

Key Highlights:

  • Growth Over Time: Foreign holdings have increased significantly from approximately $50 billion in 1970 to over $8.5 trillion by Q4 2024.​FRED+2FRED+2FRED+2

  • Recent Trends: After peaking in Q3 2024 at $8.678 trillion, holdings slightly declined to $8.513 trillion in Q4 2024, indicating potential shifts in foreign investment behavior.​

  • Economic Implications: Fluctuations in foreign holdings can impact U.S. borrowing costs and reflect global confidence in U.S. fiscal policies.

Sources:

Richard Joseph is a technology and business strategist focused on supply chains, digital transformation, and the intersection of economic policy and modern enterprise.

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