US debt and Trinidad and Tobago: Understanding the global ripple effect

The ever-growing US national debt has become a subject of intense debate across the world, and its implications are not confined to American borders. As of mid-2025, the United States owes over US$35 trillion, a figure that continues to rise as the federal government funds its operations through borrowing.

While this level of indebtedness is cause for concern within the United States, it also carries serious consequences for developing economies, including Trinidad and Tobago. In a globalised world where financial markets are interconnected and the US dollar remains the reserve currency of choice, changes in American fiscal policy and debt management have far-reaching effects.

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Why the US debt matters to the world

The US dollar is the world’s primary reserve currency. Over 60% of global foreign exchange reserves are held in US dollars, and US Treasury securities are considered among the safest investment instruments globally. This status means that as the US borrows more, it issues more government bonds to fund the debt.

These bonds are purchased by central banks, foreign governments, and international investors. As a result, the growth of US national debt directly influences global interest rates, capital flows, exchange rates, and inflation patterns.

For countries like Trinidad and Tobago, which rely heavily on international trade, imported goods, and access to global credit, these shifts in the US financial system can have wide-ranging effects. From the cost of borrowing to the price of imported food and energy, the US debt has an indirect but powerful role in shaping local economic realities.

US National Debt Counter

Exchange rate pressures and currency volatility

Trinidad and Tobago maintains a managed float exchange rate system, where the value of the Trinidad and Tobago dollar (TTD) is closely tied to the performance of the US dollar. As the US debt increases, global confidence in the dollar may fluctuate, leading to periods of depreciation or appreciation.

When the dollar weakens due to rising debt or inflationary pressure, it can erode the value of foreign reserves held in US currency. For T&T, this is particularly concerning, given that most of its reserves are in US dollars. A weaker dollar also means that T&T’s US-dollar earnings from oil and gas exports are worth less in real terms, which could reduce government revenue and foreign exchange inflows.

Conversely, if the US raises interest rates to manage inflation and attract bond buyers, the dollar may strengthen. While this can increase the purchasing power of T&T’s reserves, it can also make imports more expensive and place pressure on the Central Bank to adjust its monetary policy to keep the TTD stable.

Higher global interest rates

One of the most immediate consequences of rising US debt is the potential for higher global interest rates. As the US Treasury issues more bonds, it may need to offer higher yields to attract buyers. Since US bond yields serve as a benchmark for global borrowing costs, countries around the world, including Trinidad and Tobago, may find themselves paying more to access credit.

This can affect everything from government infrastructure projects to business expansion plans. Higher borrowing costs mean higher debt service obligations, which can strain national budgets and limit the fiscal space available for social programmes and economic development. For small economies already managing significant external debt, this can lead to austerity pressures or delayed investments in critical sectors.

Imported inflation and rising prices

US fiscal policy also plays a role in shaping global inflation. When the US engages in large-scale deficit spending, particularly without a corresponding increase in production, it can trigger domestic inflation. Given the global dominance of the US dollar, inflationary pressure in the US often spills over into international markets.

Trinidad and Tobago imports a substantial portion of its food, consumer goods, and industrial equipment from the US and countries that price their exports in dollars. If prices rise in the US, these goods become more expensive for T&T businesses and consumers. This is especially significant in an import-dependent economy where cost-of-living concerns are already a major issue for many households.

Moreover, inflationary trends can reduce the real value of wages, affect purchasing power, and lead to higher interest rates locally, as the Central Bank attempts to maintain price stability. The result is a tightening economic environment that disproportionately affects low- and middle-income earners.

Impact on commodity prices and energy exports

As a hydrocarbon-based economy, Trinidad and Tobago’s economic health is tied closely to the global price of oil and natural gas. The US is both a major energy producer and consumer, and its fiscal and debt policies have a knock-on effect on global commodity prices.

An increase in US debt-related inflation could push oil prices higher temporarily, which may benefit T&T in the short term through increased energy revenues. However, such price hikes are often accompanied by volatility and are unsustainable in the long-run. In the event of a slowdown in the US economy, demand for petrochemical exports from Trinidad and Tobago could drop, affecting production levels and employment in the energy sector.

Additionally, any significant shifts in US energy policy or investment decisions influenced by debt levels can affect global supply chains and pricing mechanisms, further complicating economic planning in energy-exporting nations like Trinidad and Tobago.

Capital flows and investor sentiment

Rising US debt can also influence international investor sentiment. When investors perceive US Treasuries as more attractive due to higher yields, they may move capital away from emerging markets. This process, often referred to as “capital flight”, can reduce investment inflows into Trinidad and Tobago.

Such capital outflows may impact the stock market, increase borrowing costs, and limit access to foreign direct investment. For a country seeking to diversify its economy and attract investment in non-energy sectors such as tourism, technology, and manufacturing, this presents a serious challenge.

At the same time, investor perceptions of risk can change rapidly. Any signs of US political instability related to debt ceiling negotiations or credit rating downgrades could lead to a global sell-off in risk assets, hitting small markets like T&T the hardest.

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Debt dependency and policy constraints

As the US becomes more focussed on managing its own debt obligations, its willingness and ability to provide international aid, concessional loans, or trade incentives may decline. For developing countries that rely on US funding or preferential trade agreements, this can limit growth opportunities.

Trinidad and Tobago may face reduced support for bilateral development initiatives, decreased access to favourable export terms, and a shifting geopolitical landscape where the influence of non-Western powers grows. This could require the country to adopt a more diversified foreign policy and economic strategy.

Moreover, any tightening of US financial regulations or reduction in global liquidity as a response to its debt could constrain the ability of local banks and businesses to access affordable foreign credit.

Preparing for global financial shifts

To mitigate the effects of rising US debt, Trinidad and Tobago must adopt proactive economic policies. Diversifying foreign exchange reserves beyond the US dollar, strengthening regional trade partnerships within CARICOM, and investing in non-energy sectors are essential steps.

Fiscal discipline is also critical. By managing public debt responsibly and avoiding unsustainable borrowing, the government can improve investor confidence and maintain creditworthiness. Expanding domestic capital markets and promoting financial literacy can help create a more resilient financial system capable of withstanding external shocks.

The private sector, too, has a role to play. Businesses must explore new export markets, invest in digital transformation, and build supply chain resilience to navigate global uncertainties effectively.

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Conclusion

While the US national debt may seem like a distant issue, its impact on economies like Trinidad and Tobago is real and growing. From currency stability and borrowing costs to inflation and trade, the effects are woven into the daily economic experiences of businesses and citizens alike.

As the global financial system continues to evolve, policymakers and stakeholders in Trinidad and Tobago must remain vigilant, informed, and adaptive to ensure long-term stability and prosperity in an increasingly interconnected world.

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