- Tariff policies may cut foreign bond demand, pressuring the U.S. Treasury market.
- Current account deficit grows as financial inflows sustain U.S. borrowing capacity.
- Bipartisan trade shifts risk reducing capital inflows critical for deficit financing.
BitMEX co-founder Arthur Hayes warned via X that proposed Trump tariff policies could disrupt the U.S. Treasury market by reducing dollar inflows from exports.
Hayes argued that if foreign nations, particularly major exporters like China, earn fewer dollars through trade, their capacity to buy U.S. bonds will decline.
Hayes: Tariffs Risk Foreign Bond Buying, Force Fed ‘Brrrr’
This scenario would pressure the Federal Reserve and domestic banks to absorb Treasury demand, Hayes explained, increasing the need for monetary expansion.
Related: How a Potential Fed Shift to QE Could Impact Your Crypto Portfolio (Analysis)
He described this potential outcome as requiring the Fed to “Brrrr”—a reference to large-scale money printing—to maintain market stability.
Context: Decades of Deficits Funded by Surpluses
The backdrop is the U.S.’s persistent current account deficit (including trade, services, income, transfers), which reached $1.15 trillion by Q4 2024, continuing a multi-decade trend deepened since the 1980s. Hayes linked this trend to long-standing trade policies, global manufacturing shifts, and China’s rise as an export powerhouse following its 1994 yuan devaluation and 2001 WTO entry, which coincided with declining U.S. manufacturing.
While the U.S. runs ongoing trade deficits, its financial account (measuring capital flows) showed a surplus, reaching $1.25 trillion in Q4 2024, reflecting foreign purchases of U.S. assets. Hayes noted exporters often use earned dollars to buy U.S. treasuries and equities rather than converting to home currencies, helping keep export prices competitive and funding U.S. markets.
How Tariffs Could Disrupt Dollar Recycling
This system, where export dollars are recycled into U.S. assets despite trade gaps, supports U.S. financial markets and funds government borrowing.
Related: Trump’s “Liberation Day” Arrives: How Will New Tariffs Affect Crypto Prices?
However, Hayes warned that restricting trade flows via tariffs could cut off these vital inflows, increasing stress on the Treasury market.
Bipartisan Policies & Rising Fiscal Pressures
Hayes also observed that while Trump is vocal about trade restructuring, both major U.S. parties have pursued similar policies recently. Former President Biden extended limits on Chinese access to U.S. technology, and key Democratic figures have echoed tough trade stances.
With the Treasury aiming to reduce the federal deficit significantly (e.g., from ~7% towards 3%) by 2028, sustained capital gains from strong financial markets are critical.
Hayes cautioned that reducing foreign dollar inflows via tariffs could jeopardize that outcome, complicating fiscal planning amid rising debt rollovers.
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