Tariffs Repel Foreign Investment

Countries with trade surpluses tend to buy U.S. government and corporate bonds.

By Robert C. Pozen. He is a senior lecturer at MIT Sloan School of Management and a former president of Fidelity Investments. Excerpts:

"these surpluses have enabled many of the countries to invest heavily in U.S. Treasury securities and U.S. corporate bonds, helping keep U.S. interest rates relatively low and bolstering America’s economic growth."

"Over the past decade, these foreign holdings have steadily increased, from about $2.9 trillion in 2013 to more than $4.3 trillion by the end of 2023. In mid-2023, foreigners held 27.4% of all U.S. corporate bonds"

"some of the biggest foreign holders of U.S. corporate bonds are countries that have regularly run trade surpluses with the U.S." 

"since target countries will want to respond to reciprocal tariffs, they may stop buying or even sell U.S. debt securities. Either response would increase U.S. interest rates and decrease economic growth."