UNITED STATES (VOP TODAY NEWS) — While American experts reject the idea that China will dump its huge reserves of US treasury bonds as a counterstrike in a trade war, an opposite point of view is being formed in Beijing, writes the South China Morning Post.
But since Beijing has promised to fight “to the end” in a trade war, and the United States is preparing to impose increased duties on imports of Chinese goods for another $ 300 billion, China may have no choice but to sell treasuries, it follows from reports that have spread widely in Chinese social networks.
Such a move will lead to a fall in prices for US bonds and a sharp increase in their yield. If China converts the dollar proceeds from the sale back into yuan, it will strengthen the Chinese currency against the US dollar.
“This will happen only when China has no other choice. It’s a weapon of last resort,” said David Chin, founder of Basis Point Consulting. “If China no longer exports to the US, they will not need a weak yuan and a strong dollar to induce Americans buy.”
Initially, China may want to avoid market attention, from time to time quietly dropping US treasury bonds, Chinese media reported. When the market gets used to such deals, China can dramatically increase sales to create panic and a quick correction in the market.
If China decides to reset US debt, this could trigger unknown US countermeasures that could increase market volatility. China’s actions can also arouse the anger of other major bondholders, such as Japan and the European Union.
“This is a very complicated situation, because there are interested parties, such as the EU, with their investments. So this is a serious geopolitical step, which represents a significant situation, but only when there is no hope for reconciliation,” Chin said.
US President Donald Trump said on Thursday, he is “looking forward to” meeting with PRC President Xi Jinping during the G20 Summit in Osaka, Japan. Despite the lack of plans for further meetings between the negotiators, the US president noted that there is still the possibility of a trade deal.
This article is written and prepared by our foreign editors writing for VOP from different countries around the world – edited and published by VOP staff in our newsroom.
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