The most important figure in Trump's tariff war

USA vs the world - here is the most important figure to keep an eye on

Andreas Cervenka

Reporter and economic commentator

This is a commentary text. Analysis and positions are the writer's.

Updated 14.34 | Published 13.56

The entire world economy is in the pot during Trump's tariff conflict with China, writes Andreas Cervenka. Photo: AP

Donald Trump is something as unique as a man who needs to borrow 150 billion kronor a day but still considers himself to be sitting with a Royal Straight Flush.

Anyone who wants to follow how his poker game against the rest of the world is going would be wise to keep a close eye on a very specific data point.

On Thursday, China once again raised tariffs on the United States to 125 percent.

The gradual escalation between the world's two largest economies gives off a distinct Las Vegas vibe.

With the difference that it's not colorful chips but the fate of the entire world economy that's at stake.

The announcement from China caused the stock markets to continue falling.

Donald Trump seems so triumphant about this that he has issued new threats of tariffs against Mexico, citing a water debt unknown to many and apparently unpaid.

Economic history is being written right now - right before our eyes. Crises have come and gone over the past twenty-five years: September 11, 2001, the financial crisis, the pandemic, the inflation crisis in 2022, the collapse of Silicon Valley Bank in 2023.

Every time things have started to shake, investors have done the same thing: moved their money to the United States.

For decades, US government bonds have been to nervous fund managers what hot chocolate and a cuddly blanket are to scared children.

The flight to the United States usually means two things: the US dollar strengthens against other currencies and the interest rate that the United States pays on its debt falls.

But not now. During the latest crisis, triggered by a man with at least eleven bankruptcies under his belt but who feels compelled to restructure the world economy, the opposite has happened.

American assets are no longer seen as the safest on the face of the earth.

In recent days, the dollar has continued to fall and the interest rate on US government bonds has risen. During the turbulence of the past week, ten-year bonds have risen from 3.9 percent to 4.4 percent and, above all, have fluctuated sharply up and down, which is as unusual as it is worrying.

Former US Treasury Secretary Larry Summers has described it as American bonds behaving like the debt of a third-world country.

Does it matter?

Yes, quite a lot.

Former US Treasury Secretary Larry Summers. Photo: J. Scott Applewhite / AP

US Treasury securities are extremely important to the financial system, a kind of engine oil in the global machinery where thousands of billions are bought and sold every day.

One explanation for this is simply that there are so many of them. 

Anyone who surfs the US Treasury Department website will be informed that the government's current debt amounts to $36,213,771,222,289.

That is just over $36,000 billion, or the equivalent of around SEK 2.7 million per American household.

The debt is increasing rapidly. Recent figures show that during the six-month period ending last March, the government had revenues of $2,260 billion and expenditures of $3,567 billion, which meant a deficit of $1,307 billion.

It is a hole that must be filled with loans.

But it doesn't stop there.

The US borrows both in the short and long term, with securities that run for anything from a few weeks to 30 years. When the debts mature, the US must repay the money.

Since the state is running a deficit and cannot pay, the solution is to constantly replace the old loans with new ones.

A total of $3 000 billion in debt is expected to mature in 2025.

If the US continues to spend money at the same rate as the past six months, the state will need to borrow in the region of $5,600 billion this year. That's just over 150 billion kronor a day or six billion an hour.

When interest rates rise, this becomes more expensive. The interest on the loans is already the second largest expense item in the budget after the Social Security system.

In the coming years, the debt is predicted to continue to increase explosively.

When Donald Trump reversed the tariffs the other day, many points to the rise in interest rates being behind it.

There is now speculation as to whether Chaina has started selling off its government bonds in retaliation for the US tariffs, which has in any case contributed to the unrest.

According to official figures, China owns US government bonds worth the equivalent of 760 billion dollars, but in reality the sum is 1,200 billion dollars, according to analysts.

But not only China but all the countries that the US has now declared economic war on have a hold on the US.

In total, foreign investors own US government bonds worth 8,500 billion dollars.

If interest rates rise rapidly, it could be a signal that one or more countries are starting to dump their holdings.

If the interest rate on ten-year bonds goes above five percent, the pressure on Donald Trump will be massive, if it goes to six percent, we are talking about a large-scale crisis in which the US central bank, the Federal Reserve, may have to step in and buy support.

In normal times, the bond market is a sleepy place. Donald Trump has turned it into a war zone.