Eric Demuth presents a seductive thesis: that Trump’s tariff rhetoric isn’t really about trade at all—it’s a sophisticated macroeconomic maneuver to crash the economy just enough to bring down Treasury yields and refinance U.S. debt on the cheap.
It’s neat. It’s counterintuitive.
And it’s deeply flawed.
1. You can’t deflate your way out of $9 trillion.
Let’s start with the heart of the argument: that engineering a recession will lower yields enough to refinance America’s debt mountain.
Yes, recessions generally suppress yields. But this isn’t the early 1980s. The U.S. debt-to-GDP ratio is now over 120%. The deficit is structurally embedded. And most importantly, the buyers of that debt—both domestic and foreign—are watching very carefully.
Confidence matters.
A deliberate strategy to tank growth and increase uncertainty doesn’t soothe bondholders. It spooks them. Especially international ones.
If investors sense that the U.S. is intentionally weakening its economy to manipulate bond yields, they won’t reward that strategy with lower rates. They’ll demand a premium for risk. That means higher yields, not lower.
This isn’t some mechanical lever you can pull in a vacuum. The Treasury market is not a puppet theater.
2. Tariffs aren’t a yield tool. They’re an inflation accelerator.
Demuth waves away the inflationary impact of tariffs with a shrug: “Yes, short-term inflation — but medium-term recession!”
That’s wishful thinking.
Tariffs increase input costs, reduce supply chain efficiency, and spark retaliatory actions. This doesn’t just bump up CPI—it distorts inflation in ways the Fed hates. That forces monetary tightening, not easing.
Remember 2018–2019? Trump’s tariff war already happened. And what did we get?
- Rising prices in key goods
- Business uncertainty
- Flattening growth without the yield collapse Demuth predicts
Even if a recession follows, inflation often remains sticky when driven by supply shocks. In that scenario, the Fed doesn’t cut—it hesitates.
So no, tariffs aren’t a secret path to yield suppression. They’re a confusing, blunt-force policy with unpredictable macro consequences.
3. You don’t reboot the economy on command.
Demuth’s “three-step” plan reads like a Bond villain monologue:
- Crash the economy.
- Refinance.
- Stimulate and ride the next boom.
It’s clean. Too clean.
The idea that you can time and execute a controlled recession, just enough to push yields lower, and then flip the stimulus switch like it’s 2020 again? That ignores the unruly, non-linear nature of economic cycles.
Recessions are easy to start. Hard to manage. And far harder to end.
In 1930, Smoot-Hawley didn’t create a useful downturn. It triggered a global depression.
In 2008, the housing crash wasn’t part of a clever macro plan. It took years and trillions in monetary and fiscal stimulus just to stabilize.
And in 2020, the COVID crash led to stimulus because of an existential threat, not because it was convenient.
You don’t schedule growth like a Netflix release.
4. The bond market is not blind.
Demuth assumes bond markets will react like a physics experiment: contraction leads to deflation, which leads to lower yields.
But markets are made of people. With memories. With models. With risk dashboards.
If they see a policy mix that introduces long-term inefficiencies, stunts innovation, adds regulatory noise, and creates geopolitical friction—they may demand more yield, not less.
Especially if inflation remains above the Fed’s 2% target. Especially if fiscal deficits remain large. Especially if the political climate turns hostile to global capital.
Conclusion: It’s not a strategy. It’s a gamble.
Demuth’s thesis makes for a compelling contrarian read. But when you unpack it, it becomes clear:
- Tariffs don’t guarantee yield suppression.
- Recessions are unpredictable tools.
- Bondholders won’t blindly comply.
- And economic control is never this clean.
The U.S. can’t afford to treat its own economy like a pawn in a game of refinancing chicken.
What we’re seeing from Trump is not a masterstroke of macro timing.
It’s politics. It’s populism. It’s protectionism dressed up in monetary theory.
And betting America’s financial credibility on a controlled demolition of growth?
That’s not strategy.
That’s Russian roulette.
USPH 
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