DEBT MARKETS & ECONOMIC IMPACT OF U.S. TRADE POLICIES: TRUMP'S TARIFFS

The economies of several nations are entwined tightly with the US via extensive holdings of its debt securities. Updated statistics as of late 2024 and early 2025 display this relationship.

Japan holds $1.09 trillion, China holds $768.6 billion, Taiwan has $234.6 billion, and Canada holds $328.7 billion, primarily in U.S. Treasury securities - the fulcrum of American debt securities.

These financial investments wield significant sway over the American Mortgage market, given that these securities bear the benchmarks for interest rates, which include those for mortgages.

 Widescale fluctuations in the buying or selling of these Treasuries can impact their yields, thus directly influencing the borrowing costs for mortgages. A selling spree might escalate yields, resulting in hikes in Mortgage rates. On the other hand, an increase in purchases may reduce these yields, making mortgages affordable.

It bears mentioning that these Countries also possess Mortgage-backed securities (MBS), with a combined estimated worth of $1.32 trillion, which directly influences the liquidity and pricing in the Mortgage market.

In a global perspective, the economic implications of U.S. tariffs enforced under President Donald Trump are quite significant and have set off a series of ramifications affecting financial markets, global trade, including the Treasury and MBS markets of the U.S, as well as the economy of Canada and globally.

Effects on the U.S economy include Treasury Market Volatility, risk of the necessity of Federal Reserve Intervention, and looming risks of inflation and recession. Canada’s economy is likely to experience trade disruption, supply chain pressures along with inflation, and GDP Impact.

The global economy may witness the escalation of a trade war, bond market contagion and fears of a global recession.

Recent reports indicate that foreign nations and investors have sold off significant amounts of U.S. Treasury securities, with nearly $390 billion offloaded between November 2024 and January 2025. This sell-off coincided with Donald Trump's return to the presidency in January 2025 and was driven by concerns over U.S. fiscal stability, geopolitical alignment, and the unpredictability of American policy under his administration. The countries involved in this shift include Brazil, Ireland, the Cayman Islands, Canada, Norway, India, Japan, and China, among others. While Japan and China made more modest reductions, their actions are seen as symbolic of broader caution among international holders of U.S. debt

The worldwide trade tensions derail growth potential, while the bond market may necessitate unprecedented interventions by central banks, leading to possible long-term implications on economic stability.

The U.S. tariffs under President Trump have spelled destabilization for both U.S. and international markets and economies, raising severe questions and concerns about feasible future impacts.\



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