President Donald Trump has eased new tariffs on most trading partners, but experts say his searing new 145% tariff rate on China could draw a very harsh response from Beijing that would hurt homebuyers in the U.S.
On April 10, Trump clarified that his tariffs on China now total 145%—the 125% rate he announced a day earlier as retribution for China’s trade policies, plus a previously announced 20% levy imposed over fentanyl.
The eye-watering tariff is a serious escalation of the trade war between the world’s two largest economies, effectively erecting a wall against Chinese goods. The U.S. stock market, shaking off euphoria from a day earlier, plunged in the wake of Trump’s clarification, with the benchmark S&P 500 closing down 3.5%.
Curiously, bond yields also rose, with the 10-year Treasury yield surging to about 4.4% by the closing bell, up from 4.3% in the morning. Bonds are typically a safe haven during stock market volatility, and yields usually fall during stock sell-offs as buyer demand for the notes rises.
Instead, someone is selling bonds, and lots of them, driving yields higher. Since mortgage rates follow the 10-year yield, that trend will drive mortgage rates higher if it continues.
(Kevin Dietsch/Getty Images)
It’s unclear whether China is the one selling U.S. Treasurys. But selling the notes would be a logical response from Beijing to the new tariffs, as it would devalue the yuan and make Chinese goods cheaper, propping up exports.
China is a major foreign holder of Treasury bonds, and if Beijing chose to aggressively liquidate its holdings, it would likely send bond yields—and mortgage rates—soaring, with potentially devastating impacts on the U.S. housing market.
“China seems willing to sell US treasuries, even if it means absorbing capital losses,” Olivier Blanchard, the Robert M. Solow Professor of Economics emeritus at MIT, wrote in a post on X. “And it looks like it does not take a lot to increase the 10-year rate by quite a bit.
“Given its political regime, in a game of chicken, the Chinese autocracy can absorb bad news for longer than can the Trump administration,” added Blanchard.
China holds roughly $760 billion in U.S. Treasury securities, making it the second-highest foreign holder of U.S. debt behind Japan.
“Any significant shift in China’s bond holdings could ripple through the bond market and affect mortgage interest rates. A significant sell-off would be bad news for mortgage rates,” says Realtor.com® senior economic research analyst Hannah Jones.
Mortgage rates on 30-year fixed home loans averaged 6.62% for the week ending April 10, according to Freddie Mac. That was down slightly from a week earlier, following a week of high volatility in bond markets.
Typically, a 1% increase in 10-year bond yields would result in mortgage rates rising between 1% and 2%, meaning a Chinese bond sell-off could easily push mortgages back above 7%, sending the housing market into a deep freeze.
Such a move would also dramatically increase borrowing costs for the federal government, potentially making it an attractive weapon for Beijing.
On the campaign trail, Trump vowed to return mortgage rates to 3% or lower, and his Treasury Secretary Scott Bessent has said the administration is focused on lowering long-term bond yields.
With that focus in mind, if yields start rising rapidly, Trump would have the option of quickly announcing trade talks with Beijing, which would likely calm financial markets.
Something similar appears to have happened on Wednesday, when 10-year yields spiked above 4.5%, and Trump took to his Truth Social network to announce a 90-day pause in his “reciprocal” tariffs against countries other than China.
Trump economic adviser Kevin Hassett admitted that the spike in yields added “urgency” to the president’s decision to pause many of his tariffs.
“Everything was moving forward in an orderly fashion,” Hassett told CNBC. “There’s no doubt that the Treasury market yesterday made it so that the decision that, you know, it is about time to move was made with, I think, perhaps a little more urgency. But it was going to happen.”
