Just as military strategists realize that the battle that can begin in one theater can quickly move into another, so can a trade war, as it evolves into something bigger, Peter R. Orszag reported.

In an opinion piece for The Washington Post, he wrote that as the US puts significantly higher tariffs on its trade partners, "regulatory retaliation" is only one way they may retaliate.

Another method these nations may broaden the tariff battlefield is by reducing their holdings of US debt.

As of November, foreign firms owned $8.6 trillion in Treasury securities. This represents more than one-third of the debt owned by investors, excluding the United States government's own holdings. 

Governments and private investors in Japan ($1.1 trillion), the United Kingdom ($770 billion), and China ($770 billion) each own significant holdings.

This makes Treasury markets a prime target if discussions get lengthy. Selling Treasury securities would result in financial losses, but foreign governments may tolerate such losses to put pressure on the US.

If only 10% of the US debt owned by foreign organizations were sold, replacement purchasers for $860 billion in Treasury securities would be sought, which is roughly half of the nearly $2 trillion federal deficit in 2024. 

With debt totaling about one-third of GDP expiring in 2025 and needing to be refinanced, more selling pressure from foreign government creditors offloading their holdings may dramatically raise interest rates.

Finally, other countries may seek to decrease the influence of the US dollar in international commerce and finance. 

In 2022, the dollar accounted for more than half of all international trade invoicing worldwide, and 64 percent of the global debt was based on dollars, up 15 percentage points since 2010. 

As a result, the dollar enjoys the "exorbitant privilege" of being the world's principal reserve currency, which lowers borrowing costs and gives several additional benefits to the US.

China has already been pressing for the conversion of trade currencies from the dollar to the yuan, agreeing in 2023 with Brazil and Argentina to replace the US dollar as its intermediate currency and denominate commerce with China in renminbi. 

In the same year, China and Saudi Arabia inked a $7 billion currency swap, implying that Saudi Arabia may want to shift more of its commerce away from the dollar.

Orszag notes that although a trade war may have significant consequences on other nations, this is also true for the US, particularly as it is unlikely to be limited to commerce alone.