Taiwan warns debt and trade wars shake US bonds trust

Taiwan’s central bank dropped a clear warning on Saturday: the US is racking up too much debt, and that’s shaking trust in its Treasury bonds.

Central Bank Governor Yang Chin-long said the country’s ballooning budget, combined with Donald Trump’s economic policies, is creating doubt in the stability of US sovereign debt. Taiwan holds $593 billion in foreign reserves, and over 80% of that is sitting in US Treasuries.

This is coming at a time when the US is leaning harder than ever on global investors to fund its spending. But Yang said loud and clear that Trump’s trade agenda and his habit of attacking the Federal Reserve are turning investors off.

“Trump 2.0’s trade policy has made investors hesitant about holding US Treasury bonds,” Yang said, adding that the president’s massive budget bill, which he called the “One Big Beautiful Bill Act,” could make debt levels rise too fast and threaten future confidence in those bonds.

Trump’s tax bill and tariffs cause deeper concern

Yang didn’t mince his words about the impact of Trump’s economic decisions. He said Trump’s budget could trigger a $2.8 trillion increase in the federal deficit over the next decade. That projection came from the Congressional Budget Office, which evaluated the long-term costs despite some expected short-term economic gains. For a country like Taiwan, with most of its reserves locked into those US bonds, the risk is real.

Trump’s trade moves are also getting attention. Just weeks into his second term, he slapped wide-reaching tariffs on multiple countries, including Taiwan. He paused the tariffs for 90 days in April to make room for negotiations, but Yang said this tactic does nothing to fix America’s real trade problems. “The tariff policy not only fails to solve the structural problems,” he said, “it will also impact the US economy, and threaten to further affect the outlook for global trade and the economy.”

Yang warned that these factors are undermining the international system that’s built around trust in the US dollar and American credit. This system works because most investors believe the US always pays its debts. But with policies like these, that trust is starting to crack.

Foreign investors cut back on US bond holdings

That growing doubt is showing up in the numbers. More than 200 central banks and sovereign wealth funds store their US assets at the New York Federal Reserve, but those holdings fell by $17 billion just last week. Since late March, the drop has totaled $48 billion. That’s right around when Trump’s tariff strategy began spooking the bond market.

Right now, foreign buyers make up 30% of the entire US Treasury market. That’s not a small group to lose. Torsten Sløk, chief economist at Apollo, said the signs are clear that foreign demand is slipping. Katie Craig, a credit strategist at BofA, backed that up in a note released Monday, pointing to visible cracks in foreign appetite for US debt.

Meanwhile, overall foreign holdings of US Treasuries hit a record $9.05 trillion in March, up 12% from last year. But that was before the April chaos hit. The Treasury Department will drop the next batch of numbers Thursday, which will show exactly how deep the selloff went.

Even after selling Treasuries, foreign banks usually store the cash in the New York Fed’s reverse repurchase facility, using Treasuries as collateral. Not this time. Since March, use of that facility by foreign institutions has dropped by $15 billion. Put that together with the rest, and it means US assets held by foreigners at the Fed have fallen by around $63 billion in just two months.

Yang isn’t saying the dollar’s reserve status is collapsing today. Taiwan’s central bank still calls US bonds “sound,” and says there’s no current concern about the dollar’s global role. But the underlying message is obvious: if the US keeps stacking up debt while bullying the Fed and slapping around trade partners, big players like Taiwan might decide those bonds aren’t worth the risk anymore.

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