Abacus | China has ‘nuclear options’ in trade war with US ... really?
In theory, Beijing holds a lot of economic firepower that could do great damage to US financial interests, but the dangers of blowback are so great that China would be wise to keep its powder dry
Both threats sound suitably chilling. But there are problems: the first wouldn’t work and the second would harm China at least as much as the US.
First, let’s look at the idea that China could dump its holdings of US Treasury debt. On paper, this sounds like a credible threat. According to US government figures, China owns almost US$1.2 trillion in US Treasury bonds. If Beijing were suddenly to sell them, say the scaremongers, it would trigger a collapse in bond prices and a sharp spike in US interest rates.
This, they warn, would push up the cost of funding the US government’s swelling budget deficit, lead to higher borrowing costs for US companies and consumers, precipitate a crash on Wall Street, and severely dent international confidence in the US dollar.
Except that is not how things would play out at all. For one thing, Beijing would find itself unable to sell its Treasury holdings in large volume. As word spread that China was on the offer, every private sector bond buyer in the world would run a mile. Beijing would find no one on the other side of the market.