Alain Closier
Jun 2, 2025
Q: The U.S. Debt Market and Public Deficit After Donald Trump’s Tariff Announcement: Shaken Confidence – A New Game?
Monthly Commentary
Q&A with Alain Closier
Alain Closier,
Senior Advisor
Paris, France, Europe
Question:
The U.S. Debt Market and Public Deficit After Donald Trump’s Tariff Announcement: Shaken Confidence – A New Game?
Answer:
1. Market Shock and Policy Reversal
On April 2nd, 2025 — dubbed “Liberation Day” — former President Donald Trump announced sweeping tariffs, sparking a sharp selloff in global financial markets. While initial volatility is common with major policy shifts, the persistence and breadth of this downturn were unusual. Markets continued to decline until April 9th, when Trump announced a 90-day suspension of reciprocal tariffs, though a 10% baseline tariff on all U.S. imports remained, and tariffs on Chinese goods, initially raised to 80%, were later lowered to 30% following negotiations.
2. What Did We Learn?
i. Financial Markets Are Highly Sensitive to Protectionism
This episode underscored the extreme vulnerability of global — and particularly American — markets to sudden protectionist measures. The consensus among economists and investors is clear: trade restrictions of this scale pose significant risks to global economic stability.
ii. U.S. Debt Market: A Break from Safe-Haven Behavior
More alarming than the equity market selloff was the reaction of the U.S. debt market. Normally, U.S. Treasuries serve as a refuge during times of turmoil. This time, however, they did not. Instead of capital inflows, there was a momentary exodus — a troubling signal of diminishing trust in the reliability of U.S. debt instruments.
3. Implications for the U.S. Debt and Deficit
The U.S. debt market — the largest in the world at over $29 trillion — depends heavily on global confidence. Roughly one-third of this debt is held by foreign creditors. In the context of a revived trade war, countries like China may consider leveraging their holdings of U.S. Treasuries as strategic tools — or liabilities.
The consequences are already tangible:
• The Federal Reserve has refrained from cutting interest rates, despite pressure, in an effort to stabilize investor sentiment.
• Debt servicing costs have surged, now approaching $1 trillion annually — surpassing the U.S. defense budget.
• The U.S. dollar has weakened, increasing inflationary pressure and amplifying the cost of imports.
4. A Historic Downgrade and What It Signals
Moody’s recent downgrade of the U.S. credit rating from AAA to AA1 — the first in history — reflects more than economic concerns. It points to a crisis of credibility. The downgrade is not just about fiscal numbers, but about governance, predictability, and global perception of the U.S. as a financial anchor.
5. A New Era of Uncertainty
Though markets rallied after the May 10th easing of tariffs, the damage is likely lasting. The April 2nd announcement may have inaugurated a prolonged period of uncertainty — a more destabilizing force than the policies themselves.
Markets fear not just bad news, but unpredictability. Confidence, once eroded, is hard to restore — especially when fiscal and monetary tools are constrained.
Conclusion:
This episode has reshaped global perceptions of the U.S. economy. The use of tariffs as leverage and debt as a potential retaliatory tool has introduced strategic and financial instability into what was once considered the safest corner of global markets.
What we are witnessing may be the beginning of a “new game” — one defined not by strength, but by uncertainty.
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Alain Closier, Senior Advisor
Paris, France, Europe
Alain Closier is a former member of the General Management Committee of the Société Générale group. With more than 35 years of experience in international banking and finance, he is, and has always been, passionate about creating innovative activities.
Alain Closier is a graduate of the National School of Statistics and Economic Administration (ENSAE) and holds a post-graduate degree in Economics from Panthéon-Sorbonne University, in Paris. He began his career as an economist, before joining the International Treasury department of Société Générale.
In the 90s, Alain was responsible for the international development of FIMAT. Originally only a French brokerage company, FIMAT has become in just a few years an international leader specializing in brokerage on derivative stock markets with a presence in more than 25 countries.
Alain Closier was also the creator of FIMATEX, a precursor of online brokers. In 2000, FIMATEX was one of the largest IPOs in Paris in the internet sector. After several mergers and acquisitions, FIMATEX became Boursorama, today one of the French leaders in online banking.
Alain Closier's work has been rewarded on several occasions by international financial institutions. As Director of Société Générale Securities Services (SGSS), he was elected “European Personality of the Year in Asset Servicing” in 2010 by Funds Europe magazine. Its teams were recognized both for their expertise in emerging markets and for their presence on a European scale.
Overseeing the development of the bank's venture capital activities in Silicon Valley during the 2000s, Alain Closier acquired in-depth knowledge of the problems encountered by start-ups, both in the United States and in Europe.
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