There’s been a lot of chatter recently about President Trump's aggressive tariff measures – not just as a tool for protectionism, but perhaps as a clever way to force the Federal Reserve’s hand on interest rates.
Let’s break it down in plain English.
What’s going on in 2025?
Since his return in 2025, the Trump administration has been busy rolling out new tariffs and trade restrictions. On April 2, the White House unveiled what’s being called the “Liberation Day” tariff package. This isn’t your run-of-the-mill policy tweak, either; it includes a universal 10% tariff on imports, with much steeper duties for goods from key trading partners (think roughly 34% on Chinese products, 20% on imports from the EU, and 24% on items from Japan). There’s even a 25% tariff on all foreign-made autos and auto parts, plus reinforced tariffs on steel and aluminum. Meanwhile, countries like Canada and Mexico get a milder treatment in some cases, which has led some to call them the “winners” in this scenario.
Traditionally, these kinds of tariffs are all about protecting domestic industries. Trump’s message has been consistent: decades of offshoring and unfair trade deals have hurt American jobs, and these tariffs are meant to bring manufacturing back home. But here’s where things get interesting. Beyond the usual protectionist rhetoric, some experts are saying there’s a second, hidden motive at play.
Is there a secret goal?
Now, imagine this: By pushing up prices on imported goods, these tariffs act like a little tax on American consumers. Higher prices tend to slow down spending, which could eventually slow the whole economy. And if the economy slows down, the Federal Reserve might be forced to cut interest rates to give things a boost. Lower interest rates would make it cheaper for the government to borrow money, which is a huge deal when you’re dealing with a national debt of over $30 trillion.
In a nutshell, while Trump talks about protecting American jobs and industries, there’s a growing theory that his tariffs are also meant to create enough economic stress that the Fed eventually has no choice but to lower rates, making it easier for the government to manage its huge debt. Trump spent much of his life squeezing banks and supply chains to restructure financing terms as a developer. This deal is the largest yet, with humanitarian, international, and unintended consequences.
What about bond markets?
Let’s talk about the 10-year Treasury yield – the real star of this story. After the tariffs were announced, stocks took a hit and investors jumped into U.S. Treasuries like they were going out of style. This rush to safety pushed the 10-year yield down from about 4.6% at the start of the year to around 4.0% by early April.
Why does this matter? The 10-year Treasury yield is a key indicator of how much it costs the government to borrow money. A lower yield means cheaper financing, which is a huge plus when your debt is as massive as ours. And if the Fed ends up cutting rates because of a slowing economy, that’s even more good news for government borrowing costs.
The backdrop for all this is pretty stark. The U.S. national debt is enormous, and interest payments are eating up a huge slice of the federal budget. In fiscal year 2024, net interest outlays hit nearly $881 billion – more than what we spend on Medicare or national defense! Looking ahead, interest payments are projected to hit around $950 billion in FY 2025 and could reach $1 trillion by 2026. With about $9.2 trillion of debt up for refinancing by mid-2025, even a small drop in interest rates could save the government hundreds of billions of dollars.
That’s why, if Trump’s policies can nudge the Fed into a more accommodative stance, it could significantly ease the fiscal strain. In other words, lower interest rates could mean much cheaper debt servicing, a big win in the face of our ballooning debt.
A look back for clues
History can offer us some clues. Remember 2019? During Trump’s first term, escalating trade tensions led to a slowdown that pushed the Fed to reverse course from raising rates to cutting them. Although that shift wasn’t necessarily designed to lower debt costs, it shows that aggressive trade policies can indeed trigger a monetary easing cycle.
We can also look back to the early 1980s and the 1990–91 recession. In those cases, deep economic slowdowns eventually led to significant rate cuts, which in turn made government borrowing more affordable, even when deficits were high. These historical precedents remind us that when the economy takes a hit, lower rates often follow.
So, what’s really going on? There are two ways to look at Trump’s approach:
· Traditional Protectionism: The tariffs are all about defending American jobs and industries from foreign competition, a classic “America First” strategy. This is the story you hear on TV: tariffs to bring back manufacturing and level the playing field in global trade.
· A Clever Debt-Driven Gambit: On the other hand, there’s a growing belief that these policies are also aimed at creating a controlled slowdown. This slowdown would force the Fed to cut rates, which would then reduce the cost of servicing the national debt. In this view, the tariffs have a double purpose: protecting domestic industries and improving the fiscal picture.
Of course, these two ideas aren’t mutually exclusive. Trump might be doing both—pushing for protectionism while also benefiting from lower rates that ease debt burdens.
Wrapping up
In the end, Trump’s 2025 economic strategy might be more than just a straightforward trade war. The aggressive tariffs and fiscal tightening measures appear to be sending a strong signal: if economic growth slows, the Fed could be forced to lower interest rates, making it much cheaper for the government to refinance its enormous debt.
While many investors focus on the stock market, the real story may beplaying out in the 10-year Treasury yield. If the Fed doesn’t come down on its own, this tariff war might just push it into action. The coming months will tell whether this unconventional approach pays off or if it turns out to be a risky gamble that costs more than it saves.
Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com.Read more of his insights atheraldtribune.com/business. Securities offered through Avantax Investment ServicesSM, member FINRA, SIPC.Investment advisory services offered through Avantax Advisory ServicesSM, insurance services offered through an Avantax-affiliated insurance agency.6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.
