President Trump’s tariff plan is shocking to some and confusing to others. It’s all anyone can talk about these days, and it’s undoubtedly causing upheaval in the market. Many don’t feel confident that the market will withstand the pressure of rising costs. But don’t kid yourself: this was a long time coming.
For far too long, the U.S. has kicked the can down the road in terms of fiscal responsibility. The last twenty years of monetary policy have been largely disastrous, as we have forgotten the key rule of staying financially afloat: one cannot spend more than they earn.
This is true in business, home economics, and especially government. I like to distill it into a handy little formula: Govt = Revenues – Expenditures.
If you want to make and retain wealth, you must not outspend your income. You must keep debt at a minimum or pay it down regularly. This is basic common sense. As I mentioned in Chapter One of my book, Beyond Wall Street: “Here’s our problem in the simplest terms: At the time of writing, we have a national debt of $32.17 trillion dollars in the United States. At the current rate of spending, we’re set to hit over $40 trillion by 2028. This number does not include current and future obligations of national programs like Social Security and Medicare…Our country’s high and rising debt matters because it devalues our currency, threatening our economic future and society as a whole…Now, with this mess on our hands, the United States has broken its covenant with her people.”
That chapter was written over 2 years ago, and nothing was done except to increase the level of debt the country owes. What has followed has been unfortunate but expected: deficits have ballooned, and we must take action or experience the consequences within the decade.
Currently, the U.S. government collects approximately $5.2 trillion in federal revenue, while federal spending for the fiscal year 2025 is projected to be about $7.0 trillion, resulting in a deficit of roughly $1.9 trillion.1The national debt stands at approximately $36.56 trillion.
Even if revenue were to increase, paying off the debt would remain a massive challenge, as we’re mainly making interest payments rather than reducing the principal. We’re in an unsustainable, thoughtless cycle of borrowing just to stay afloat.
This situation has only been possible because of the U.S. dollar’s role as the world’s reserve currency. Other nations hold U.S. dollars to stabilize their economies, facilitate international trade, and store value. This reserve status is a tremendous privilege—it creates built-in demand for the dollar and enables the U.S. to borrow money at lower interest rates than it otherwise could.
Because foreign governments, banks, and corporations need dollars to do business, the dollar is in high—but somewhat artificial—demand, which keeps it structurally overvalued regardless of our fiscal health. Without reserve currency status, the dollar would likely fall in value due to mounting debt and continuous deficits.
To maintain the supply of dollars globally, the U.S. must run a persistent trade deficit. We import more than we export, and we pay for those imports in dollars. Exporter nations—like China—receive those dollars and often reinvest them into U.S. Treasury bonds, helping to finance our debt. While this keeps global trade functioning, it comes at the cost of swelling U.S. debt.
Because the dollar underpins global finance, foreign and domestic investors are eager to hold safe, dollar-backed assets like Treasury bonds and don’t mind a lower interest rate. That demand gives the U.S. an edge few other countries enjoy: the ability to borrow large sums of money at low cost.
1Congressional Budget Office. (2025, February 13). Monthly Budget review. https://www.jec.senate.gov/public/vendor/_accounts/JECR/fiscal/January%202025%20Fiscal%20Update.pdf
2 Fiscal data explains the national debt. (n.d.). https://fiscaldata.treasury.gov/americas-finance guide/national-debt/
But that edge is not guaranteed forever.
If the U.S. were to lose its reserve currency status, demand for Treasury bonds would decline, forcing us to offer higher interest rates to attract buyers. Our borrowing costs would rise sharply, and the flexibility we’ve relied on for decades—to run deficits, finance wars, fund stimulus programs—would evaporate.
If the U.S. were to lose its reserve currency status, demand for Treasury bonds would decline, forcing us to offer higher interest rates to attract buyers. Our borrowing costs would rise sharply, and the flexibility we’ve relied on for decades—to run deficits, finance wars, fund stimulus programs—would evaporate.
Enter tariffs. Although they are somewhat unpopular with the public, these taxes on foreign goods have a significant advantage: they can be used to pressure countries into a new accord that addresses artificial dollar overvaluation, ballooning debt, and persistent trade deficits. Theoretically, how would this work?
Using tariffs as leverage, the U.S. could explicitly require that countries reduce their U.S. dollar holdings by shifting their Treasury holdings to longer dated obligations. Most countries hold short-term Treasury bonds that mature within 2-3 months. However, if we mandated that foreign countries investing in Treasury bonds use long-term treasuries, which would mature 10+ years down the line, we could stabilize borrowing costs, buy time to address our debt crisis, and reduce the growing risk tied to short-term refinancing.
That risk arises from decisions made by former Treasury Secretary Janet Yellen, who inexplicably financed the government by borrowing short-term at significantly lower rates—similar to financing the cost of your home on a credit card with a monthly bill instead of locking in a stable, long-term mortgage rate. This decision, while cheaper in the short term, exposed the U.S. to escalating refinancing risk, meaning that all that short-term debt comes due simultaneously. As it happens, it is coming due this year to the tune of $9 trillion. To avoid paying it all at once—since we cannot afford it—we must refinance the debt. If interest rates rise, our overall costs grow even further out of control.
A single basis point (0.01%) decrease in yield on the 10-year Treasury results in a reduction of interest expenses by one billion dollars. Consequently, the U.S. has saved nearly $100 billion in borrowing costs due to the recent decline in the 10-year yield. The mistakes made by the former Treasury Secretary are significant, underscoring the critical importance of interest rates and the precariousness of the market. The current Treasury Secretary, Scott Bessent, is fully aware of this, as he has repeatedly pointed out this monumental error. “What we are looking at is building the long-term economic fundamentals for prosperity, and I think the previous administration had put us on the course toward financial calamity,” he noted recently.
The plan, as I understand it (and regardless of its poor implementation and communication), is to impose tariffs on the countries to which the U.S. owes money to lower refinancing rates and weaken the U.S. dollar. Tariffs impose greater economic pressure on our creditors—particularly those reliant on exports—than they do on the U.S. consumer base in the short term. This also may put significant pressure on their currencies, forcing them to weaken and prompting lower—and more realistic—valuations of the U.S. dollar. A weakened U.S. dollar would allow us to reduce the real value of our enormous debt, remedy trade deficits, enhance competitiveness in trade, generate income to help pay off our debt, and promote lower long-term interest rates.
As noted, Scott Bessent has framed this approach as a crucial step toward long-term financial stability—a hard path, but a necessary one. This, though hard to imagine with the rising costs of goods and services, is correct. Without serious, sustained effort, our economic good fortune will disappear dramatically. In fact, Bessent reported recently that “50, 60, maybe almost 70 countries” have already been in touch with the administration to negotiate better trade deals.3
Many other creditor countries will need to acquiesce to reduced U.S. borrowing costs, weakening the dollar (and possibly other currencies) and stabilizing our debt situation. These countries, relying heavily on the dollar, have no choice unless, of course, they shift to another asset that is out of the traditional financial system. That alternative asset could be Bitcoin, gold, or
3 Murphy, A. (2025, April 7). Scott Bessent says up to 70 nations want to negotiate over Trump’s tariffs. Fox Business. https://www.foxbusiness.com/economy/scott-bessent-says-up-70-nations-want-negotiate-over trumps-tariffs
something else. We’ll explore what the future of Bitcoin and gold looks like in the next blog post.
For now, the truth remains: tariffs may be a bitter pill to swallow in the short term, but an ounce of prevention is worth a pound of cure. Rising costs will sting—but if managed correctly, this strategy paves the way toward healthier monetary policy, a lower national debt, and better long-term financial opportunities for us all.
