Three moves in the last week have exposed the limits of Donald Trump’s economic bullying. The US slapped 50% tariffs on another $20bn of Canadian goods – then threatened the same rate on the cars, trucks, parts and steel that America Inc depends on. On Monday, the Treasury secretary, Scott Bessent, menaced Iran’s trading partners with exclusion from the US financial network, hoping that coercion can deliver what months of war have not.
And as the costs of war, tariffs and pro-billionaire tax cuts helped send US bond yields higher, the Treasury stepped in to tame long-term rates. These are not contradictory policies but a gamble: that US economic power can be repeatedly weaponised without reducing others’ willingness to depend on it. The Trump administration’s “D-day” sanctions are potentially the most consequential because they expose the scaffolding of American financial power.
While markets shrugged off the immediate threat, that calculation might change were the US to target a major Chinese refinery or bank. Such an escalation could spark a trade war with Beijing. But China has pressure points – especially farmers in Republican states – that make using it costly.
In the long run, there is a price to pay. Nations hold one another’s currencies partly because they trust the political relationship. Mr Trump is testing what happens when they don’t.
The moves to control the bond market are the most revealing. There is nothing new about Washington managing yields: the Federal Reserve has long been able to buy treasuries. What is new is Mr Bessent doing it so openly to deal with the fallout from failed policies.
Mr Trump owns this: his tariffs raise input costs; his Iran war pushed up energy costs; his nonchalance about rising American grocery prices reassures no one. When that mixture helps produce higher inflation expectations and rising long-end bond yields, Mr Trump’s team steps in to prevent interest rates ticking up. The US president is willing to use state power to lower borrowing costs while hiking others through tariffs, war and cuts to social programmes.
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