As the U.S. and China continue to face off with no sign of let-up by the Trump Administration, in the back of the minds of a lot of people in the know, including in the White House, lies the possibility that China could bring down the U.S. dollar by selling off their extensive holdings of Treasury bills. In many respects this could be seen as “the nuclear option” in the financial sphere, and would certainly not be the first response from such a responsible player like China. But if pushed to the wall, as President Trump appears to be willing to do, this would certainly be a powerful weapon.
Hong Kong-based daily South China Morning Post carried an article on the matter on April 10, entitled “'Everything’s on the Table’: Are the U.S. and China Edging Toward Financial War?” As of January, China held about $760 billion of U.S. government debt, making it the second largest stakeholder of that debt aside from Japan. It was reportedly large Japanese sales of U.S. government debt three days ago that led Trump to pull back on most of the tariffs, while piling more on China. This gives Beijing the leverage to spark a large sell-off of U.S. Treasuries, with unpredictable consequences for the entire financial system.
