In the middle of the controversy surrounding tariffs, the U.S. continues to have a debt problem and a budget deficit problem. But it also has a trade deficit problem, that wants to correct, not considering that, thanks to it, and the fact that the U.S. dollar is the reserve currency of the world, most trade partners recycle some of the proceeds of that trade with the US, and buy treasuries with them. Out of the three biggest trade partners (China, Canada and Mexico), only China had (and still has) meaningful treasury holdings, but as you can see in the chart below, they are not buying more, and they are letting the portfolio run off, with Japan doing the same, albeit more slowly. The US is bitting the hands of the ones that finance its deficits, which is probably not wise, particularly at this juncture. Just the UK has increased its position in Treasuries and it’s about to become the second largest holder of U.S. Bonds. But the trade with the UK is not as meaningful and sustainable to finance the U.S. over time. In terms of international policy, this approach is a risky move by the U.S. with big consequences at stake.
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