Compared with imposing retaliatory tariffs, selling bonds has less impact on growth. Nations subject to tariffs shouldn’t fund the US fiscal deficit.
As policymakers around the world struggle to keep up with US President Donald Trump’s tariff announcements, they seem to struggle more with determining the appropriate policy response. So far, they have leaned towards imposing trade restrictions of their own. This is an own-goal approach that reduces growth, raises inflation and places an unnecessary burden on domestic households and businesses.
Trump is often credited with thinking outside the box. It is time policymakers elsewhere did the same. An alternative to imposing tit-for-tat tariffs is to match US tariffs with a similarly scaled reduction in central bank holdings of US Treasuries.
