Trump’s Tariffs: Everything You Wanted to Know about Them but Were Afraid to Ask the Bond Market
By Fabio Vighi
[This article posted in May 2025 is available on the Internet, https://thephilosophicalsalon.com/trumps-tariffs-everything-you-wanted-to-know-about-them-but-were-afraid-to-ask-the-bond-market/.]
Everyone’s busy debating whether Donald Trump’s global tariff plan is economic protectionism, geopolitical strategy, electoral propaganda, or the act of a madman who has lost the plot. It seems to me that such excitement is misplaced. Trump’s flip-flopping trade war is in many ways a red herring. What is framed as a bold economic policy that will drive investment in the US and ignite a new economic boom serves to distract us from its real purpose, which belongs to a completely different playbook. As paradoxical as it may sound, the ongoing economic slowdown of the United States is not the painful yet necessary short-term side effect of Trump’s tariffs, but rather its goal. Collateral damage is the intended outcome. In other words, Trump’s aggressive neo-mercantilism works mostly as perception management (whether he means it as such or not). It is much less about reshoring manufacturing than feeding the credit addiction of financial capital. Let’s break this down.
Uncle Sam’s GDP has already shrunk by an annual rate of 0.3% in the first quarter of 2025, after growing by 2.4% in the previous quarter. A sustained, tariff-related economic slump would not only serve to justify an inflation that in fact has never dropped (when measured against wages and savings). More crucially, it would provide the Federal Reserve with the perfect pretext to lower interest rates (the cost of money), which in turn will bring down yields on sovereign debt. The absolute priority for the US Treasury is as urgent as it is banal: to refinance around $9 trillion in maturing debt by the end of 2025. In addition to this historically unprecedented “maturity wall”, the Congressional Budget Office projects a $1.9 trillion federal deficit for fiscal year 2025, bringing the total debt issuance requirement to over $10 trillion. Without the US dollar as global reserve currency, this massive imbalance would have already precipitated a default.
As things stand, what is required is sending the 10-year Treasury yield well below 4%, while also exerting pressure on a 30-year yield that has recently jumped to 5%. In systemic terms, the interest on this mammoth debt must fall whatever it takes, since it defines the entire financial environment and therefore the entire constellation of Western capitalism, and beyond. To get a sense of just how desperate the situation is, it is instructive to look at Japan, the biggest creditor of the United States, currently holding $1.3 trillion in US debt. Shigeru Ishiba, Japan’s Prime Minister, has just issued a warning that his country, which runs a debt-to-GDP ratio of around 250% (the world’s highest), and struggles with a shrinking economy, is now facing a fiscal situation ‘worse than Greece’. In short, contemporary capitalism is in a debt-chasing-debt rabbit hole, the mother of all vicious circles.
The US debt yield is not a trivial matter but the epicentre and prime mover of everything we perceive as real. It has, in other words, acquired ontological status as the pulsating heart of the overleveraged financial domino, and therefore as the barometer of the entire economy. Yields spike when bonds sell off, or when Treasury auctions flop as nobody wants to buy US debt certificates, which translates as painfully higher borrowing costs across the board. So if you want to know where history is being written, watch the benchmark 10-year Treasury note: rapidly rising yields suggest tight liquidity and a potential credit crunch, which normally prompts the Federal Reserve to step into the bond market and buy the unloved Treasuries. For every single basis point reduced, billions in interest are saved. This keeps credit flowing into stocks, which in turn perpetuates the capitalist illusion. But the Fed needs “good reasons” to openly intervene in, and therefore distort, the bond market, or else confidence in a system that keeps inflating its currency will deteriorate at supersonic speed. This is why, to address a debt burden of the current magnitude, and a toxic deficit that Trump is expanding despite the rhetoric, the ghost of a recession, perhaps coupled with a severe financial downturn, could prove beneficial – particularly if the drop is sold as a fantasy of short-term sacrifice for long-term gains. But let’s be absolutely clear: even that might not be enough, in which case we’d better prepare for another “global emergency” of major concern.
If there’s one point that Trump has been coherent about, it is that he wants lower rates. He’s not alone. Especially after Moody’s downgrade of the US credit rating (16 May 2025), most corporate media seem to have joined the “agent of chaos” President in calling for the same policy. So while tariffs may lead to inflation in the short term (which official data can easily misrepresent), sustained economic contraction would force the hand of the Federal Reserve to bring down rates and “stimulate”, which would also put an end to the boring Trump vs Powell pantomime. After all, this has been the playbook of “soap bubble” capitalism over the last few years. Specifically, it was the main driver of the Covid charade with its pandemic programmes and monetary bazookas. Rather than admitting defeat by self-abuse, the system plods along thanks to a stream of manipulated emergencies, which supports financial credit while further depressing workers, communities, and entire societies.
In fact, the dominant yet hyper-indebted financial casino, where money talks to itself without passing through commodity-producing labour, can only stay inflated through the controlled demolition of what is left of the productive economy. It’s the catch-22 of self-cannibalising zombie capitalism. Real demand must be methodically suppressed, for if even a fraction of the ocean of credit that has been pumped into the financial sphere were allowed to “come down to earth”, society would be hit by wave after wave of hyperinflation. Such is the deadly imbalance accrued by “the most rational” of economic systems we could ever imagine. Whether we like to admit it or not, the world we live in is hostage to stocks, derivatives, and increasingly creative types of securitisations. We are attached to an “everything bubble” of nominal money-capital that is just “too big to burst”. And Donald Trump, or whoever in his place, is allowed to “do politics” only insofar as he keeps furthering the interests of financial capital.
The launch of Quantitative Easing in 2008 (large-scale buying of Treasury debt and other securities by the Fed) inaugurated an era of acute monetary distortions, which translates as the terminal crisis of fiat money as a store of value. We’re now in Buzz Lightyear territory: “to QE infinity and beyond”. Central banks are all in, providing ever-increasing amounts of mouse-clicked electronic cash so that deficits can be monetised and debts rolled over. “Stealth QE” is already happening – just last week, the Fed quietly purchased $43.6 billion. This shows that there’s simply no going back to the “good old days” of productive capitalism: the past has no future. After the third and now fourth industrial revolutions (microelectronics in the 1970s and AI), the nostalgic pining for the mass work society of post-WWII Fordism is a chimera. A slow-motion collapse is what we already experience as capital transitions into its structurally unproductive terminal phase. The sooner we grasp this, the easier it will be to begin to envision a society emancipated from capitalism.
Regardless of whether it was Yellen, Biden, Trump, or any of their predecessors, financial conditions have degenerated into a Ponzi scheme characterised by credit addiction – where credit originates from economic nothingness rather than tax revenues, GDP, and therefore value production. The blame for this predicament has now been shifted onto the global community, as with Trump’s tariffs narrative. The underlying truth is that, with debt and deficits ballooning and global de-dollarisation spreading, QE is the only baseline supporting the system. Only fiscal spending to the moon can save the markets. And when that fails, the resulting destruction of fiat currencies will legitimise visions like the global reset recently floated out by the IMF, which in all likelihood will be based on centrally controlled digital currencies.
For the moment, it all still comes down to one central deception: the US Treasury market must continue to be perceived as the safest haven for a dollar-centred, debt-driven financial system. Cheap credit must continue to flow into stocks and derivatives. This deception works because everyone believes in the narrative of zombie capitalism, which, let’s not forget, is also criminally supported by warfare – as in the case of the deliberately protracted Ukrainian conflict and the ongoing extermination of Palestinians. Wars justify spending bills that support credit chains. It’s systemic violence at its purest.
One of the most morbid symptoms of our “end times” is the obdurate attachment to the farce of liberal democratic politics, which has never been quite so morally bankrupt and devoid of emancipatory agency. The artificial political divide between technocrats and populists, liberals and conservatives, or globalists and nationalists is staged precisely so that we don’t look behind the scene. In systemic terms, there is no difference: both sides work to extend the life expectancy of a fatally damaged mode of production. The intellectual and ideological emptiness of our narcissistic politicos is offset by their enhanced celebrity status, which perversely reconciles the masses with their own undoing. If even leftists can’t help debating Trump as an anti-establishment figure, with some being swayed by his hollow promise to revive production for the working class (of the future!), it is probably because they have forsaken any half-serious attempt to understand, let alone critique, political economy.
The emancipatory potential of institutional politics has long been exhausted, having disappeared with the productive potential of capital itself. What we have instead is political theatre as grotesque crisis management, the cynical administration of the collapsing edifice we call “modernity”. As with Trump’s tariffs, political hyperactivity hides the historical impotence of the capitalist narrative. Social reproduction is no longer based on the labour commodity, which once gave politics a credible role as mediator in the conflict between capital and wage work. While human toil continues to be exploited at ever-increasing rates, and politics fades into a tragicomic act, capitalist societies enslave themselves to the despotic dictates of debt-soaked financial speculation. The only good news is that the stage we’ve entered, irrespective of how protracted and destructive it will be, can only mark the end of the trajectory of our historical form of life.
The Author
Fabio Vighi is Professor of Critical Theory and Italian at Cardiff University, UK. His recent work includes Critical Theory and the Crisis of Contemporary Capitalism (Bloomsbury 2015, with Heiko Feldner) and Crisi di valore: Lacan, Marx e il crepuscolo della società del lavoro (Mimesis 2018).