Trump’s Tariffs and U.S. Debt: Long-Term Risk and Short-Term Profit

#SP500

Key zone: 6,400 - 6,500

Buy: 6,500 (on strong positive fundamentals); target 6,650-6,700; StopLoss 6,420

Sell: 6,400 (after a retest of the 6450 level); target 6,250-6,200; StopLoss 6,480

A new idea has taken shape in the bond market: major investors expect that tariff revenues will help strengthen the U.S. financial position. At the same time, the start of the year was marked by a sharp drop in Treasury prices amid Trump’s trade war.

Reminder:

In April, the U.S. introduced large-scale tariffs against key trading partners. This triggered global market declines and raised fears of an economic and logistics crisis. Shocked by the negative flow, Trump partially suspended some tariffs, but the situation remains highly complex.

Tariffs have always been used as a tool of geopolitics, domestic industry support, and a source of tax revenues. Rating agencies S&P and Fitch noted that expected future revenues from import tariffs were the main argument against downgrading the U.S. credit rating.

According to the Congressional Budget Office (CBO), the tax reform launched alongside tariff policy will increase U.S. debt by $4.1 trillion over the next 10 years. These costs were expected to be offset exclusively by tough tariff revenues.

Today, the market is confident that even the current partial but extremely high tariffs can temporarily reduce public debt. The shift in market logic occurred after months of uncertainty in Trump’s economic policy, including confrontation with China and criticism of the Fed. Negativity has reached a critical point and now demands compensation.

Last Friday, the Court of Appeals upheld the U.S. Court of International Trade’s decision that President Trump had exceeded his authority. At the same time, the court allowed the tariffs to remain in place until the case reaches the Supreme Court. This ruling sparked fresh concerns in the bond market.

If the court cancels most of Trump’s tariff program, this could reduce inflation and improve economic growth, forcing the Fed to ease monetary policy. However, if the focus shifts to debt and budget deficits, the bond market may react negatively.

On the eve, the S&P 500 rose by about 50 bps, with nearly all gains concentrated in the last half hour of trading. The rally looked artificial, fabricated, and managed by automated algorithms. At the close, about $2 billion in buy orders fueled the move. But today, this amount will likely be offset by sales.

The market must reach balance today, because tomorrow comes NFP — an event of critical importance for the current market.

So we act wisely and avoid unnecessary risks.

Profits to y’all!