That’s the question that CNN asks in an article headlined “America’s Trading Partners Have a Massive Bazooka in the Trade War. They May Never Use It.”
The May 6 piece recalls that on May 2 Japanese Finance Minister Katsunobu Kato said that, in the high-stakes trade negotiations with the U.S., selling their holding of U.S. Treasuries is a “card on the table.… It does exist as a card, but I think whether we choose to use it or not would be a separate decision.”
Japan is the largest foreign holder of Treasuries in the world, with $1.1 trillion. China is second, with $784 billion. The U.K. is third with $750 billion.
CNN thinks it highly unlikely that any of these countries would actually start a sell off. Two days after his original comments, Kato backpedaled, saying Japan is “not considering the sale of U.S. Treasuries as a means of Japan-U.S. negotiations.”
CNN explained that “Japan was unlikely to fire this big bazooka in the trade war anyway, since selling U.S. Treasuries is considered an extreme move—one that would likely backfire, experts say.… If Japan sold massive amounts of U.S. debt, it would very likely spark a massive Treasury selloff. Treasury rates would in turn sharply increase, making it more expensive for Washington to borrow and freaking out investors along the way. ‘It would send shockwaves around world financial markets if one of the most reliable buyers of Treasuries is no longer reliably in the market for it,’ said Ernie Tedeschi, director of economics at the Budget Lab at Yale and a chief economist in the Biden administration.”
