China has been cautioned against retaliating to President Trump’s aggressive new tariff regime by offloading its massive holdings of US government bonds — a move that analysts warn could damage its own economy more than it harms Washington.
Earlier this month, Trump imposed sweeping tariffs of up to 145 per cent on Chinese exports to the US, sparking fears of a renewed economic confrontation between the world’s two largest economies. The drastic escalation has led to speculation that Beijing could strike back by selling off a significant portion of its US treasuries, a strategy that could destabilise American financial markets by pushing bond yields even higher.
However, analysts are urging restraint, warning that such a move would come with serious financial and strategic drawbacks for China itself.
“The concern is that China might dump its vast holdings of treasuries, even if that risked major side effects like racking up huge losses on its own portfolio and undermining its competitiveness against the US by driving the [yuan] renminbi back up against the dollar,” said John Higgins, chief markets economist at Capital Economics.
China is the second-largest foreign holder of US government debt after Japan, with more than $700 billion in longer-dated treasuries. Japan, by comparison, holds over $1 trillion. If Beijing were to significantly reduce its holdings, it could trigger panic across global markets already on edge over the US administration’s protectionist policies.
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