US Economy Crippled by $390 Billion Sell-Off of Treasuries by Allies: Retaliation to Trump Tariff?

You might have heard that countries like China and Japan own a lot of US debt, but what does that really mean, and why do they do it? When the US government needs to borrow money, it issues something called Treasury securities—essentially IOUs that promise to pay back the money with interest. Other countries buy these securities, which means they are lending money to the US government. But why would they want to do that?

US debt is considered one of the safest investments in the world. This is because the US government has a long history of paying back what it owes, and the US dollar is the most widely used currency in global trade. For countries looking for a place to park their money with low risk, US Treasuries are a smart choice. Many countries, especially those that export a lot to the US, end up with huge amounts of US dollars. Instead of just holding onto that cash, they use it to buy US debt. This not only earns them some interest but also helps keep their own currency stable and their exports competitively priced. It’s part of managing their reserves; governments keep foreign currency reserves kind of like emergency savings, and US dollars make up a big part of those reserves. Buying US Treasuries is a way to store those dollars safely while earning a return instead of letting the money sit unused.

How Often is Data Published?

The US Department of the Treasury regularly publishes data showing how much US government debt is held by foreign countries. This information is released once a month through a report called the Treasury International Capital (TIC) report. The TIC data shows which countries are buying or selling US Treasury securities and how much each country holds. It includes major holders like China, Japan, the United Kingdom, and others. The data is usually published around the middle of each month and reflects holdings from two months earlier. For example, the report released in March will typically show holdings as of January.

Just a few days ago, the latest data was published, revealing a global sell-off between November 2024 and January 2025. Foreign governments and financial centers significantly reduced their holdings of US Treasury securities, signaling a broad shift in international investment strategy and a potential reassessment of US debt as a safe haven asset. This period marked one of the most widespread sell-offs of US debt by foreign holders in recent memory, with nearly every major creditor reducing its exposure.

The reduction was not isolated to one region or group of countries but was global in nature. Nations across North America, Europe, Asia, and the Middle East pulled back, with a total estimated sell-off exceeding $390 billion during the three-month span. Among the largest sellers was Brazil, which led the pack by offloading approximately $55.9 billion in US Treasury holdings. Ireland, a key financial hub often used by multinational corporations and investment funds, followed closely, cutting its holdings by $42 billion. The Cayman Islands, another important offshore financial center, also made a significant move, reducing its US Treasury exposure by $41.2 billion. Canada was another notable seller, shedding $37 billion worth of US debt—a sharp move that raised eyebrows considering the traditionally strong economic ties between Canada and the United States.

Norway and India also made substantial reductions, with Norway selling $35.6 billion and India $34.9 billion, respectively. These cuts suggest a wider strategy among central banks and sovereign funds to rebalance portfolios, manage currency risks, or reduce reliance on US assets. Even the United Kingdom, one of the largest and most consistent holders of US Treasuries, reduced its holdings by $26.6 billion during this period. Similarly, Singapore trimmed $26.5 billion, while South Korea sold $22 billion—both significant adjustments given their historical participation in the US bond market.

Surprisingly, even Japan and China, the two largest foreign holders of US Treasuries, took part in the sell-off, each reducing their holdings by $7.8 billion. Although modest compared to their total positions, the synchronized nature of their actions adds weight to the argument that this was not a coincidence but rather part of a larger trend.

Other reductions included Belgium, which cut $10.5 billion; Switzerland at $8.3 billion; Luxembourg at $7.9 billion; and Hong Kong at $7.4 billion. France sold $2.8 billion worth, and Germany, though minimally, also reduced its holdings by $0.5 billion. Taiwan, often a steady holder of US debt, lowered its position by $5.4 billion.

Several factors likely contributed to this sweeping wave of sell-offs. One major reason is the current high-interest rate environment in the United States. As interest rates rise, existing bonds with lower yields become less attractive, leading investors to sell off older securities. At the same time, the strength of the US dollar and volatility in global currency markets have driven central banks to adjust their reserves and reduce exposure to dollar-denominated assets.

Another key element behind this trend is geopolitical risk. In recent years, especially following the Russia-Ukraine war and increasing US-China tensions, many countries have become more cautious about relying heavily on US assets. Concerns about sanctions, potential asset freezes, and the broader weaponization of finance may be encouraging nations to diversify their holdings. This has led some central banks to reduce their US Treasury exposure in favor of gold, euros, or other alternative reserves, part of a broader trend often referred to as dollarization.

The synchronized pullback from US Treasuries by such a wide range of countries may also reflect growing unease with the fiscal trajectory of the United States. With persistent budget deficits and rising national debt, some foreign investors may be questioning the long-term sustainability of US borrowing.

The fact that this sell-off occurred against the backdrop of a potential political transition with the return of Donald Trump to the political spotlight could have further fueled caution among international holders. Between November 2024 and January 2025, foreign nations offloaded nearly $390 billion in US Treasury securities—a dramatic and coordinated shift away from American debt that reflects growing international unease.

While macroeconomic factors such as high-interest rates and currency volatility played a role, the timing of this sell-off is no coincidence. It coincides directly with Donald Trump’s return to the US presidency in January 2025. Trump’s reelection has reignited global concerns over US fiscal stability, geopolitical alignment, and the predictability of American policy. His renewed America First agenda, characterized by protectionism, bilateralism, and an aggressive stance toward trade and global institutions, has led many foreign governments to reassess the risks of holding large amounts of US debt.

During his first term from 2017 to 2021, Trump shocked many allies and rivals by pulling the US out of multilateral agreements, imposing broad tariffs—especially on China and Europe—and using economic tools such as sanctions and financial access as levers of power. With Trump now back in office, many countries expect a return to those unpredictable and often unilateral tactics, and they are acting preemptively to shield their economies.

This is clearly visible in the latest Treasury International Capital (TIC) data. Countries such as Brazil, Ireland, the Cayman Islands, Canada, Norway, and India made massive reductions in their US Treasury holdings during the three-month period. Even longtime holders like Japan and China, the two largest foreign creditors to the US, cut their exposure, although the reductions by Japan and China were modest in comparison. The move is symbolic, signaling caution from even the most entrenched holders of US debt.

Much of the concern stems from Trump’s hardline rhetoric and early executive actions. Within weeks of taking office, he reinstated tariff threats, re-evaluated trade agreements, and signaled a tougher stance on foreign investment in US infrastructure and technology sectors. These developments have sparked fears of renewed trade tensions, which directly affect countries that rely on US markets or maintain close financial linkages to the American economy.

At the same time, Trump’s continued criticism of the Federal Reserve and his unpredictable stance on government spending raise red flags for foreign investors who prize stability and institutional independence. The US national debt is at record highs, and Trump’s fiscal proposals, which include major tax cuts and increases in defense spending, could expand deficits even further. Foreign central banks and sovereign wealth funds, many of which are tasked with managing risk over the long term, appear to be hedging against this growing uncertainty by shifting reserves away from Treasuries.

There’s also the matter of financial weaponization. Under Trump’s previous administration, the United States used its control over the global financial system to enforce sanctions and freeze assets—measures that served American interests but alarmed other countries. With Trump back in power, some governments are taking proactive steps to reduce their exposure to US jurisdiction altogether. This includes decreasing reliance on dollar-denominated assets, diversifying into gold, euros, or renminbi, and reducing Treasury holdings to limit vulnerability.

The fact that this coordinated sell-off happened just as Trump was returning to office is no coincidence. It’s a response to the strategic and financial uncertainty that his leadership represents to many international actors.

As of April 2, 2025, the United States is set to implement significant reciprocal tariffs aimed at aligning the tariff rates imposed by its trading partners on US exports. This policy shift, part of President Donald Trump’s America First agenda, seeks to address perceived trade imbalances and protect domestic industries by imposing equivalent tariffs on imports from countries that maintain higher tariffs on US goods.

A Quick Pause for Reflection

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The forthcoming tariffs represent one of the most substantial import tax increases in recent US history. They are designed to match or exceed the tariff rates that other nations impose on American goods, effectively leveling the playing field for US exporters. This move aligns with President Trump’s America First agenda, which seeks to reduce trade deficits and bolster domestic manufacturing.

The implementation of these tariffs is expected to have wide-ranging economic effects domestically. While the tariffs aim to protect US industries, they may lead to increased costs for consumers. Products that rely on imported components or raw materials could see price hikes, contributing to inflationary pressures. Federal Reserve Chair Jerome Powell has indicated that these tariffs are expected to delay progress in reducing inflation this year, although he noted that the price impacts are likely to be temporary.

Globally, the tariffs are anticipated to disrupt established supply chains and trade relationships. Countries that export heavily to the US may seek alternative markets or adjust their trade policies in response. This shift could lead to a realignment of global trade networks, with long-term implications for international economic cooperation.

The announcement of the United States’ upcoming reciprocal tariffs, set to take effect on April 2, 2025, has triggered a wave of reactions from key global trading partners. While some are still weighing their options, others have already begun enacting retaliatory measures, signaling the early stages of what could evolve into a multi-front trade conflict.

The European Union has publicly voiced its concern over the sweeping nature of the US tariff policy, characterizing it as a potential violation of World Trade Organization norms and a threat to transatlantic economic cooperation. EU Trade Commissioner Ingrid Lawren stated that while Europe remains committed to avoiding escalation, it will not stand by idly if European goods are unfairly targeted. The EU is expected to finalize its assessment by mid-April, after which a coordinated response may include tariffs on emblematic American exports such as motorcycles, whiskey, jeans, and agricultural goods—a tactic employed effectively during the 2018 US-EU trade dispute.

With European elections on the horizon and rising political pressure within member states, the bloc’s response will be carefully calibrated to protect EU industries without undermining diplomatic ties with Washington.

China, on the other hand, has already taken a more aggressive stance in response to the US announcement. Chinese state media warned that the American economy would face substantial consequences if the tariffs are enacted, with the Global Times declaring that high retaliatory tariffs are inevitable. True to that warning, Beijing has already rolled out tariffs on US agricultural exports, particularly targeting soybeans, pork, dairy, and corn—commodities sourced from politically sensitive swing states.

Additionally, China has halted imports of several US food and energy products and may soon expand restrictions to aerospace parts, automobiles, and tech components. The Chinese Ministry of Commerce has also hinted at possible legal action at the WTO, as well as the introduction of non-tariff barriers such as heightened regulatory inspections and tightened customs clearances for American goods. These measures are part of a broader strategy to exert pressure on US exporters and deepen divisions within the American business community, especially among firms that have extensive exposure to Chinese markets.

In response to the United States’ announcement of additional tariffs set to take effect on April 2, 2025, Canada has outlined several strategic measures. Canada has initiated a public consultation process regarding the implementation of additional counter-tariffs on US imports. This consultation aims to gather feedback on proposed measures targeting approximately $125 billion worth of US goods. The process allows stakeholders to provide input on the potential impact and effectiveness of these tariffs to mitigate the impact of US tariffs.

Prime Minister Mark Carney announced plans to eliminate internal trade barriers within Canada by July 1, 2025. This initiative seeks to create a seamless domestic market by removing federal barriers, harmonizing regulations, and establishing common national standards. Research indicates that reducing internal trade barriers could lower trade costs by up to 15% and boost the economy by 4% to 8%.

In light of escalating trade tensions, Prime Minister Carney is expected to trigger an early parliamentary election scheduled for April 28, 2025. This decision aims to solidify the government’s mandate in addressing the ongoing trade conflict and defending Canadian sovereignty.

Certain sectors are particularly vulnerable to the effects of the tariffs. American agriculture is among the most vulnerable industries in this new phase of trade confrontation. US farmers rely heavily on export markets to sell their products, with countries like China, Canada, Mexico, and members of the European Union accounting for a substantial share of agricultural trade. In 2023 alone, agricultural exports from the US totaled over $170 billion, with soybeans, corn, wheat, pork, and beef leading the way.

Retaliatory tariffs from foreign governments, particularly those aimed at politically sensitive agricultural states, could severely restrict market access. China, for instance, has already signaled its intention to reintroduce punitive tariffs on US soybeans and pork, echoing moves made during the 2018 to 2019 trade war. If implemented, these tariffs would reduce US competitiveness abroad, leading to a buildup of surplus supply within

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