On Friday, September 5, Joseph Stiglitz, the Nobel Prize-winning economist in the United States, expressed concerns about the fiscal challenges facing the country despite the recent decline in long-term borrowing costs. He believes that the market has not fully understood the financial challenges that the United States, as the world’s largest economy, is facing.
Stiglitz, a former Democratic Party advisor, criticized President Trump’s claims that tariff revenue could help fill the deficit, stating that the market has been slow to react and has not fully grasped the impact of tariff policies on fiscal revenue.
According to Stiglitz, the market has underestimated the time needed for supply chain adjustments due to tariffs. He highlighted that in the long run, companies will seek low-tariff import channels, leading to a potential drop in tariffs and worsening the fiscal situation beyond current predictions.
Meanwhile, investment institutions have differing opinions on the bond market. Jonathan Mondillo, Global Head of Fixed Income at Aberdeen Asset Management, expressed concerns about the huge risks in the long-term U.S. bond market.
Recent market fluctuations, notably when the U.S. 30-year Treasury yield briefly surpassed 5%, were triggered by a federal appeals court ruling against most of Trump’s imposed tariffs, causing market panic and fears of having to refund billions in tariff revenues.
Despite the market volatility following the court ruling, experts point out that the significance of this ruling on tariffs may not be as drastic as some investors anticipated.
Jeff Buchbinder, Chief Equity Strategist at LPL Financial, emphasized that even if the Supreme Court upholds the appeals court’s decision, the majority of tariff measures implemented by the government are likely to continue in the long term.
However, the federal government’s financial outlook faces many risks. With the U.S. national debt exceeding $37 trillion and the projected federal deficit reaching $2 trillion in the 2025 fiscal year, interest payments on the debt remain a substantial annual expense.
Analyses indicate that Trump administration’s budget plans foresee increasing deficits by trillions of dollars in the next decade, with the current deficit already surpassing 6% of the national GDP.
Jason Furman, former Chairman of the White House Council of Economic Advisers, warned that the high deficit policy set by the Trump administration could eventually lead to rising mortgage rates and a deteriorating business investment environment.
Simultaneously, global long-term bond yields have surged due to concerns over the deteriorating fiscal conditions in European countries.
Analysts suggest that the global financial markets are undergoing a period of transformation due to trade tensions and potential disruptions in the supply chain, leading to increased bond issuances and higher yields.
The warning from Stiglitz highlights that the massive U.S. deficit and uncertainty surrounding tariff policies are exacerbating the volatility in the bond market, making the direction of the U.S. economy a top concern for global investors.
(Adapted from English reports by Dajiyuan Times and CNBC)