The US Lacks Money but Offends "Patrons": Why Could a Tariff War Push Up Gold Prices?

What does the U.S. government need the most right now? According to MarketWatch columnist Brett Arends, the answer is quite simple: someone needs to keep lending money to the United States.

But just as the U.S. debt continues to balloon and long-term Treasury yields remain under pressure, the Trump administration has chosen to reignite a trade dispute with Canada.

On Monday, Trump announced that starting January 1, 2027, the U.S. will raise tariffs on Canadian cars, trucks, auto parts, and steel to 50%. Arends sees the irony in this decision: Canada has been one of the biggest buyers of U.S. Treasuries in recent years.

In the past five years, Canada’s holdings of U.S. Treasuries have roughly doubled to $460 billion, largely offsetting the impact of China’s reduction in holdings.

“The U.S. is waging a trade war with someone willing to lend it money”—that’s the core observation Arends makes about this conflict.

The Real Issue for the U.S.: The Fiscal Gap

Arends believes that understanding the current U.S. Treasury market requires looking beyond Trump’s tariff policy or recent market maneuvers by Treasury Secretary Scott Bessent. The primary concern is just how much money the U.S. needs to borrow in the future.

The Congressional Budget Office (CBO) projects that over the next ten years, the U.S. government will borrow about $24 trillion, with net debt continuing to climb sharply from current levels. At the same time, interest payments on the debt are becoming an ever heavier burden, expected to exceed $1 trillion in fiscal year 2026.

Moreover, these forecasts may even be too optimistic. The calculations assume that some tariff revenues will persist, some tax cuts will expire as planned, and that social security benefits will be cut under current law once the trust fund is depleted. But these assumptions might not all hold.

Therefore, the U.S. is not facing a typical bond market fluctuation, but a long-term, increasingly inescapable problem: deficits are not disappearing, debt keeps growing, and interest payments are eating up more and more fiscal space.

Bessent has recently attempted to lower yields by expanding long-term Treasury buybacks and other measures. Arends argues these actions may improve liquidity, but they don’t change the basic fiscal arithmetic of the United States.

The Treasury can adjust debt maturities, utilize available cash, or buy back long-term bonds, but the government will still need to keep raising funds.

As for cutting “waste, fraud, and abuse,” Arends is also skeptical. The CBO’s long-term outlook already assumes that discretionary spending as a percentage of GDP, excluding Social Security, Medicare, and interest payments, will decline. Even so, deficits will keep widening.

Only major tax increases or deep cuts to social benefits can truly alter the fiscal trajectory, but both would require a political consensus that does not presently exist in the U.S. system.

Ultimately, the Federal Reserve May Have to Step In

If the U.S. continues to need massive borrowing, and overseas investors demand ever-higher yields, who will buy all those Treasuries? Arends’ answer: the Federal Reserve.

He believes that amid mounting fiscal pressures, the likelihood that the U.S. will resume quantitative easing is on the rise. The logic is clear: if private investors and foreign central banks are unwilling to absorb a growing amount of U.S. debt at low enough interest rates, the Fed may ultimately have to create new money to buy Treasuries.

This can ease stress in the bond market, but brings another problem—further undermining the dollar’s purchasing power and exacerbating concerns that the United States will inflate away its debt.This is a key reason why Arends is bullish on gold.

In the decades after World War II, the U.S. experienced high nominal economic growth and sustained inflation, which effectively helped reduce the real burden of debt. Should the U.S. embark on a similar path, gold would serve not only as a traditional safe haven, but also as a tool for investors to hedge against dollar depreciation, fiscal disorder, and the financialization of debt.

Therefore, in Arends’ view, Trump’s tariff threats against Canada are far more than an issue of cars and steel. The U.S. government, which needs to borrow massive sums every year, is now at odds with one of its major creditors.

If Canada and other overseas buyers become increasingly reluctant to purchase U.S. Treasuries, the U.S. will ultimately face a much tougher question: when foreign investors no longer want to foot the bill, who will absorb America’s ever-expanding debt?

And if the final answer is the Federal Reserve, then a surge in gold prices may come as no surprise at all.