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China's Trillion Dollar Trade Card

Published 04/10/2018, 06:31 AM
Updated 04/10/2018, 06:31 AM

Investing.com - China has one weapon in a trade war that the U.S. can't match.
And that's its role as the largest U.S. creditor.
China holds $1.17 trillion of U.S. government debt, more than any other nation.
Beijing could leverage that position in two ways.
The easiest would be to boycott future Treasury auctions at a time when the U.S. is borrowing money at a record rate.
That's likely to depress demand and trigger a rise in interest rates to attract buyers to pick up the slack.
Higher Treasury rates would bleed over into the commercial market, forcing companies and individuals to pay more when they borrow.
Higher interest rates would also slow economic growth.
The other option would be to sell some of its existing holdings, which it might have to do at a loss, but it would nevertheless shake up the Treasury market and perhaps the stock market as well.

Latest comments

I like how the video said that if China sold a sizable percentage of its US debt it will 'perhaps' shake the stock market. That's almost like saying that if a 747 crashes in the middle of your front yard, your house 'perhaps' will be shaken.
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