Economist Peter Schiff warns that President Donald Trump’s trade deals, which involve commitments for purchasing more U.S. goods, could have unintended consequences for inflation and treasuries.
What Happened: On Monday, in a post on X, Schiff flagged concerns regarding the commitments made by foreign governments to purchase more American goods.
He says, “As part of his trade deals, Trump is getting commitments from foreign governments to purchase more U.S. goods,” but Schiff believes that these deals come with a trade-off, such as “buying fewer U.S. Treasuries,” which he says leads to higher U.S. consumer prices and interest rates.
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He says, “buying more U.S. goods will likely come at the cost of buying fewer U.S. Treasuries, putting added upward pressure on U.S. consumer prices and interest rates.”
Schiff’s claim hinges on the dynamic that if foreign buyers redirect capital from U.S. Treasuries to American-made products, the shift could reduce demand for government bonds. In turn, lower demand for Treasuries could lead to higher yields, thus increasing interest rates.
Why It Matters: As part of Trump’s latest trade deal with the European Union, the latter has committed to purchasing $750 billion worth of American energy, with nations in the bloc also agreeing to buy American weapons.
Similarly, the trade deal with Indonesia two weeks ago involved a purchase order for 50 Boeing jets, “many of them 777s,” as Trump said, which is in addition to buying $15 billion worth of U.S. energy and $4.5 billion in agricultural products.
Last week, the Trump administration finalized a trade agreement with Japan that includes expanded market access for U.S. cars, trucks, rice, and other agricultural goods. As part of the deal, Japan has also pledged to invest $550 billion in the United States.
Trump said in a Truth Social post, “Japan will invest, at my direction, $550 billion dollars into the United States, which will receive 90% of the Profits.”
However, earlier this week, Tokyo’s Chief Negotiator, Ryosei Akazawa, clarified that only about 1% to 2% of this $550 billion will be investments, with the rest structured as loans and guarantees.
Price Action: U.S. 10-Year Treasuries trade at 4.404%, while the 5-Year and 3-Year papers yield 3.965% and 3.872%, respectively, at the time of writing.
Photo Courtesy: Studio Romantic on Shutterstock.com
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