High interest rates could balloon the national debt

Marketplace

The episode examines the economic and geopolitical implications of recent major events, including the US-China summit and rising interest ra

Key takeaways

The US-China trade truce has been extended for only two months, maintaining an uneasy equilibrium in trade relations.
US Treasury yields have reached 5% or higher, driven by concerns over large deficits and inflation.

Main topics

US-China Trade Relations
National Debt and Interest Rates

Notable quotes

We're in kind of like an uneasy equilibrium, right? It's not getting worse, but it's not getting better.

Conclusion

The episode highlights a period of significant economic uncertainty dr

Transcript preview

Speaker 2 (0:02) We got some pandas. They got a bald eagle statue. We'll look at what else came out of this week's U.S.-China summit. From American Public Media, this is Marketplace. In Denver, I'm Amy Scott, in for Kai Risdahl. It's Friday, September 25th. Good to have you with us. Chinese President Xi Jinping wrapped up his three-day visit to Washington today, his first state visit in 11 years. But aside from plenty of pageantry and the exchange of animals, what was actually accomplished between the world's largest economic powers? We're going to get to it in our weekly wrap with Anna Swanson at The New York Times and Greg Ip at The Wall Street Journal. Hi, you two. Hello. Anna, you're our resident trade reporter. So was there any actual progress on that front in this state visit? Speaker 1 (1:06) So there's still not a lot of specificity and it does look pretty limited. The two sides did agree to extend their trade truce for two months, kind of a minimal time period. The U.S. got a couple more pandas, which, you know, personally, always very exciting. President Trump said that the farmer. Right. President Trump said the farmers would be happy, but we don't have a lot of evidence to that effect yet. So essentially, there was a lot of pomp and circumstance, a state dinner that featured some tech titans, but not a lot of substance. to the visit. And I think really the takeaway is, you know, it's hard to do a business and trade summit with a country when you're skeptical of doing business and trade with them. And that's really where the U.S. is with China now. A lot of advisors don't, you know, particularly want to lower tariffs or welcome auto investment into the United States from China. So, you know, the question is just, you know, what are they negotiating over? And it's really become just this kind of, you know, Speaker 2 (2:11) you Speaker 1 (2:11) know, minimal truths that just keeps basic relations going. Speaker 2 (2:16) Yeah. And Greg, can you remind us what this truce covers and what's at stake? It's mostly about rare earth minerals, right? Speaker 5 (2:25) Yeah. Well, if you cast your mind back a little over a year when the trade war began, the United States put very high tariffs up to 100 % or more on China. China responded by restricting exports of certain critical things like rare earths. The truce that was arrived at in Busan, South Korea basically said, we'll pull back some of our tariffs, they'll start releasing those exports again. And that's where we stand. That has now been extended for another couple of months. So I guess you could say that, assuming that that then gets extended again, we're in kind of like an uneasy equilibrium, right? And it's not getting worse, but it's not getting better. And honestly, you know, given that I think the United States is on a long-term path to decouple its economy from that of China, That's about all you can expect. It's not getting worse at a faster rate, but there's no great desire on the side of the United States or I think of China to really get much closer. Speaker 2 (3:21) Well, another issue that was at least supposed to be on the agenda was AI. And Ana, as you said, there were some big U.S. tech titans who attended a state dinner at the White House last night. But as you reported, there weren't any Chinese tech executives there. What, if anything, do you make of that? Speaker 1 (3:39) Yeah, I thought that was really remarkable to have a state visit with a lot of prominent American business people, you know, tech, tech people certainly were seated at the head table, but also, you know, other companies like Pfizer or GE, GE Aerospace, but no Chinese companies at all. And, you know, in the past, when the US has welcomed leaders from other countries, they do, you know, typically bring their business people with them. President Trump, when he went China in May brought a contingent of American business people. You know, I think that it shows that just how hard the relationship is at this point. The countries used to refer to business as kind of the ballast of the relationship. And that's just very thin at this point. And honestly, a lot of major Chinese companies, even in the internet space, in the auto space, are on sanctions lists, you know, lists of companies that cooperate with the military. So I think people felt that the optics of that would just be too much, but it certainly was, you know, kind of an interesting contrast with all the, you know, the supposed warmth and pomp and circumstance of that event. Speaker 2 (4:51) Hmm. Moving on to another big story this week, the bond market has gotten a lot of attention with yields on pretty much all U.S. treasuries reaching around 5 % or higher. Greg, can you just recap what's going on and what this means for, you know, the rest of us? Speaker 5 (5:08) Sure. Well, there's a few reasons why investors think that the U.S. should be paying higher interest rates on its debt. One that's been there for a while is that we have very large debts and very large deficits and they're not getting any better, notwithstanding the president's many promises to balance the budget. And so with all that debt out there, and that's a global thing, by the way, investors are just very nervous and they want higher rates. We see this in Japan and France as well. So it's a global phenomenon. The other key thing, of course, is inflation. And this week we saw the price of oil go up. That spells more inflation.