The deep economic interdependence between the U.S. and China makes a full "decoupling" too costly for either side. Instead of a clean break or a lasting peace, the relationship will likely be defined by a continuous cycle of targeted disputes, negotiations, and temporary agreements.
U.S.-China friction presents a dual threat to bond markets. Near-term growth risks from tariffs and domestic instability could push yields lower. Simultaneously, medium-term uncertainties from higher fiscal deficits, inflation, and AI-related spending point towards a steeper yield curve and higher long-term rates.
The long-term health of U.S. fiscal policy appears heavily dependent on a future surge in corporate capital expenditures. This spending is expected to fuel a growth burst specifically in the manufacturing and AI sectors, driven by the strategic imperative to outcompete China.