1 week Ago
With his unique blend of genial condescension and scarcely concealed scorn, US president Donald Trump told a black-tie gathering that the world’s leaders were lining up to “kiss my ass”. Pride, they say, comes before the fall. The sell-off in US treasury bonds, ordinarily the safest of havens for investors, was an alarming signal of collapsing confidence.
As global investment expert Edward Yardeni warned: “The Trump administration may be playing with liquid nitro.” Any heat on bond markets triggers an alarm, akin to tracking the course of a spark to a flame, for fear the whole house could go up. Reactions need to be swift and effective.
Mr Trump, for all his zeal, finally heeded the sirens coming from the markets and announced a 90-day pause on tariffs – except for China. Earlier, Fergal O’Brien, head of employer group Ibec, said the key issue now is “how long global powers let this situation continue”. Not long, as it happened.
Hopefully, the pause will allow time for serious, sober engagement beyond the red mist of brinkmanship. Any loss of confidence in the world’s largest sovereign debt market would have far-reaching consequences for the US economy. If US bonds were no longer the global safe haven, what was? That is what the analysts asked.
The last comparable global financial disruption was occasioned by a once-in-a-century pandemic Fears of a recession in the world’s biggest economy may not have been allayed entirely. Mr Trump might have temporarily dampened the flames, but loading 125pc duties on Chinese goods could result in Beijing retaliating in a similar vein. The EU had also triggered retaliatory tariffs on €21bn of US goods, targeting farm produce and products from Republican states.
The European Commission said: “The EU considers US tariffs unjustified and damaging, causing economic harm to both sides.” Commission president Ursula von der Leyen had earlier posted: “We negotiate, not escalate, to keep EU-US supply chains smooth and strong. We’re also stepping up as a competitive powerhouse: simplifying rules, deepening our single market.
Invest here, benefit here.” The message is plain: We would prefer to do business as usual, but we’re ready to do business elsewhere. With markets in turmoil and foreign funds fleeing US assets, there had been no sign of either a floor or a ceiling to the crisis.
But the message finally seems to have got through to the White House: US households do not need more hardship. Some Republican senators were also pushing back. “Whose throat do I get to choke if this proves to be wrong?” Thom Tillis asked.
Clearly, the tariffs caused severe shocks. The last comparable global financial disruption was occasioned by a once-in-a-century pandemic. That such economic contagion could be deliberately unleashed will confound many.
The threat has not lifted entirely, but bad as things are, without this de-escalation they could have been catastrophic..
