Three moves in the last week have exposed the limits of Donald Trump’s economic bullying. The US slapped 50% tariffs on another $20bn of Canadian goods – then threatened the same rate on the cars, trucks, parts and steel that America Inc depends on. On Monday, the Treasury secretary, Scott Bessent, menaced Iran’s trading partners with exclusion from the US financial network, hoping that coercion can deliver what months of war have not. And as the costs of war, tariffs and pro-billionaire tax cuts helped send US bond yields higher, the Treasury stepped in to tame long-term rates. These are not contradictory policies but a gamble: that US economic power can be repeatedly weaponised without reducing others’ willingness to depend on it.
The Trump administration’s “D-day” sanctions are potentially the most consequential because they expose the scaffolding of American financial power. While markets shrugged off the immediate threat, that calculation might change were the US to target a major Chinese refinery or bank. Such an escalation could spark a trade war with Beijing. The US has leverage. But China has pressure points – especially farmers in Republican states – that make using it costly. In the long run, there is a price to pay. Nations hold one another’s currencies partly because they trust the political relationship. Mr Trump is testing what happens when they don’t.
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The moves to control the bond market are the most revealing. There is nothing new about Washington managing yields: the Federal Reserve has long been able to buy treasuries. What is new is Mr Bessent doing it so openly to deal with the fallout from failed policies. Mr Trump owns this: his tariffs raise input costs; his Iran war pushed up energy costs; his nonchalance about rising American grocery prices reassures no one. When that mixture helps produce higher inflation expectations and rising long-end bond yields, Mr Trump’s team steps in to prevent interest rates ticking up.
The US president is willing to use state power to lower borrowing costs while hiking others through tariffs, war and cuts to social programmes. Mr Bessent wants to stop rising long yields feeding into investment and Washington’s debt-interest bill. That his former mentor at George Soros’s hedge fund criticises him and wants bond markets to force spending cuts is not to be applauded. The better question for Mr Bessent is: why shield markets from the consequences of Mr Trump’s acts, but not households?
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The trade war with Canada is economically stupid and legally dubious. In 2025, the Trump tariffs amounted to an average tax increase of $1,000 per US household. More than a quarter of Canadian exports to the US are now subject to significant tariffs or threatened with tougher ones. Ottawa’s retaliation will start in September. North American production has been organised around such trade flows and tariffs will make US manufacturing more expensive, not less.
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Why Canada? Washington has largely given up trying to change China’s economic model. Canada is seen as a soft target. The Guardian columnist Robert Reich is surely right: Mr Trump picks on a friendly neighbour because that is what bullies do. This cannot go on. American economic power depends on other countries wanting to remain in a system the US dominates. Mr Trump thinks their dependence is his weapon. The more often he uses it against them, the harder they should look for the exit.
