Shortly after China’s ambassador to the US warned of “dire consequences” of the ongoing trade tensions between US and China, even going so far as threatening “all out war,” there was, at least for now, some silver lining in the rehtoric.
Whilst willing to threaten kinetic war, Ambassador Cui Tiankai told Reuters in an interview that he does not believe Beijing is seriously considering using its massive U.S. Treasury debt holdings as a weapon in the U.S.-China trade war.
When asked if China would consider selling Treasuries or reducing purchases should trade tensions worsen, he replied:
“We don’t want to cause any financial instability in global markets. This is very dangerous, this is like playing with fire,”
This comment comes, as is clear from the chart below, with China’s holdings of U.S. Treasuries down to the lowest level since mid-2017 as the world’s second-largest economy sold US reserves to stabilize the yuan which has been depreciating in recent months due to the ongoing trade war.
Cui was not done however, adding that with China being the largest foreign holder of U.S. Treasury debt (with $1.15 trillion according to the latest Treasury data) were a good example of the economic interdependence between the United States and China – a relationship that he said would be nearly impossible and dangerous to untangle:
“I don’t think anybody in Beijing is thinking seriously about this. It could backfire,” he added.
Backfire indeed – this is why such an act was called the ‘nuclear option’ when we discussed the potential methods of retaliation China has available to it in its fight with Trump.
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