Why the bond market is at the centre of Trump’s tariff turnaround - The Front Page

US President Donald Trump has cause global market turmoil with his tariffs. Photo / Getty Images

A week after announcing his ‘Liberation Day’ tariffs and causing global market chaos, United States President Donald Trump has done a 180.

He has announced on social media that he has paused tariffs against 75 countries for 90 days – but has doubled down on a trade war with China, announcing 125% tariffs on goods from the country.

The news was well received by the stock market – the S&P 500 posted its best day since 2008, and the Nasdaq its best since 2001.

However, the move to pause tariffs appears to have been motivated by a sell-off in the US bond market.

A bond is a note of agreement on the terms of a loan. It’s an exchange of cash for regular interest payments and the return of the principal amount at a specific future date.

NZ Herald business editor at large Liam Dann told The Front Page that the bond market is essentially the debt market for the world.

“There’s something crazy like $130 trillion US dollars of debt in the world. The world runs on debt and these bond markets are widely considered to be the most powerful political force in the world.

“They’re the thing that can stop presidents in their tracks. They effectively forced the resignation of the United Kingdom Prime Minister Liz Truss when she unveiled some economic policies, which didn’t make sense to bond markets.

“So if you cop a serious reaction from bond markets, effectively a sell off of bonds, the price goes down, the yield goes up, and the cost of borrowing in your country starts to spike. And that is a big problem.”

Dann said that this sell off is effectively the markets saying that pricing a higher cost of borrowing slows down the economy, as people can’t afford to borrow.

He said that the US economy is fundamental to the dollar being the primary currency for trading in the world, and what Trump is doing is a “really high stakes game of poker”.

Listen to the full episode for more on why bonds are being sold off, what the US could do next, and what it means for the rest of the world.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.

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