It's not about trade, it's about the debt

For anyone surprised by the apparent idiocy of the tariffs, and by the admin rejecting "zero for zero tariffs" proposals: this is not about trade, it's about restructuring (wiping out) the government debt.

Read Stephen Miran's policy proposal (he's chair of the Council of Economic Advisers in the current admin). Everything is clearly spelled out, I added some quotes at the end. They think the USA provides "global public goods": a "security umbrella" (military) and "reserve assets" (financial). They want the world to pay USA for this, both retroactively and going forward.

The retroactive payment is by rolling over treasuries into "century bonds", long duration bonds (at least 50 years, possibly 100 years) which are probably also zero coupon. So $1000 in liquid, interest-bearing T-bills would become $1000 in a zero-coupon (non-interest-bearing) 100 year bond the face value of which would be wiped out by inflation by the time it is repaid. Countries the US is on good terms with may be able borrow against that (at face value), but the bond itself would probably trade at 10 cents on the dollar on the open market; more likely, there will simply *be* no market.

The other part of the plan is dollar devaluation: they want a 20-30% devaluation of the dollar against all currencies, and for other countries that have a lot of treasuries to both make the devaluation happen, and help suppress the high interest rates devaluation would likely cause by selling long duration treasuries as it's happening and afterwards as needed to keep rates low.

The devaluation provides a second hit to the real value of "century bonds". If this plan succeeds, then at the end of the day anyone holding US government debt would be lucky to get 20% of the current value of their holdings ever converted to any tangible assets.

This is an attempt at a debtor cram-down, just done at an international scale.

Tariffs are merely one of the tools that would be used to try to force countries to agree to this. But tariffs alone are not enough, they would have to be just the opening shot. Even at 100% tariff, a lot of countries that have massive US debt holdings (China, Japan, etc) would likely find it more profitable to eat the cost of tariffs than to lose the value of their holdings. So tariffs are here to stay, and after tariffs, there will likely be "something else". I'm not exactly sure what that is but it would probably be the kind of thing that could pressure holders of treasuries even more, and cause another catastrophic hit to the markets, likely the bond markets in particular.

Likely impact on stocks: I don't think their plan will work, but whether it does or not, the attempt to force other countries to go along with it will be catastrophic for US companies. Tariff retaliation is the least of it - much more concerning is capital flight. Expect concerted selling of all US assets - stocks, corporate bonds, treasuries and everything else (real estate...). Many bankruptcies are likely; and companies that manage to stay in business will be much less profitable for a long time. Ironically, this may devalue the dollar and fix the trade deficit, but nobody will like how it will happen.

Disclosure: I mostly have E-Mini S&P 500 puts with strikes between 4500 and 4900 and durations around 1-2 months out.

Quotes from Steve Miran's policy proposal -> https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf

To strengthen their own currencies, reserve managers must sell dollars. As their currencies appreciate, the United States will receive a competitiveness advantage helping our tradeable and manufacturing sectors.

To help mitigate potential unwanted financial consequences (like higher interest rates), reserve selling can be accompanied by term-out of remaining reserve holdings. Increased demand for long-term debt by reserve managers will help keep interest rates down, even if there is overall selling of USD fixed income as a result of the currency adjustment. Reserve owners hold fewer USD reserves, pushing their currencies higher, but the reserves they do hold are longer duration, helping contain yields.

If the term-out is into special century bonds as suggested by Poszar, then the funding pressure on the U.S. taxpayer for financing global security is significantly alleviated.

And a recent statement by him: https://www.whitehouse.gov/briefings-statements/2025/04/cea-chairman-steve-miran-hudson-institute-event-remarks/