A recent Wall Street Journal column by Andy Kessler makes a surprising argument: tariffs may indirectly make it more expensive for the United States to borrow money.

How could tariffs and Treasury bonds be connected?

When Americans buy more goods from countries such as Japan than those countries buy from us, foreign businesses receive dollars. Those dollars can be held or invested in American assets such as stocks, corporate bonds, bank deposits, real estate, or U.S. Treasury securities.

Foreign governments and central banks have historically held large amounts of Treasurys because they are liquid, dollar-denominated, and easy to buy and sell.

In simplified form:

Americans buy foreign goods → foreigners receive dollars → some of those dollars flow back into U.S. investments, including Treasurys.

Kessler argues that tariffs can weaken part of this cycle. If tariffs reduce imports, foreign exporters may receive fewer dollars, leaving fewer dollars to be invested back into U.S. assets, including Treasury bonds.

That matters because Washington continually needs buyers for its debt. If demand for Treasurys weakens, the government may have to offer higher yields to attract investors.

Where do those dollars actually go? They don't just sit in a vault. Foreign holders can invest them in Treasurys, but they can just as easily buy U.S. stocks, real estate, or corporate bonds instead — so a bigger flow of dollars abroad doesn't automatically mean a bigger flow into government debt specifically. And much of foreign Treasury demand isn't really about trade at all: the U.S. is widely seen as one of the safest, most liquid places in the world to park money, and investors seek out Treasurys for that reason regardless of how many goods America imports.

That points to a genuine debate among economists about which way the causation runs. Kessler treats the trade deficit as the cause and foreign investment as the effect. But former Federal Reserve Chair Ben Bernanke offered an influential alternative in his "global saving glut" thesis: that a worldwide surplus of savings, seeking safe assets, flows into the U.S. and pushes the dollar's value up — and a stronger dollar makes American exports pricier and imports cheaper, widening the trade deficit as a result. In that view, foreign investors aren't buying Treasurys because of the trade deficit — the trade deficit exists partly because the world wants U.S. assets. Both effects likely operate at once, and economists disagree about which dominates.

Japan illustrates the currency mechanics at work. If Japanese authorities want to strengthen the yen, they can sell dollar assets, including Treasurys, and use the proceeds to buy yen.

Why does that strengthen the yen?

Heavy selling increases the supply of existing dollars being offered for sale in the currency market. It does not create more dollars. If more dollars are being offered than buyers want at the existing exchange rate, the dollar's price relative to the yen tends to fall. At the same time, buying yen increases demand for yen, tending to push its value higher.

Kessler raises an important question:

If the United States continues borrowing heavily, who will buy the debt—and what return will they demand?

For those interested in liberty, free enterprise, and prosperity, that is a question worth understanding and debating.

Sources

Andy Kessler, "The Bessent Predicament," The Wall Street Journal, Sept. 20, 2026.

Ben S. Bernanke, "The Global Saving Glut and the U.S. Current Account Deficit," Federal Reserve Board, Sandridge Lecture, Virginia Association of Economists, March 10, 2005.