It’s been previously suggested by commentators in previous US-China economic conflicts that China could use it’s vast holdings of US treasuries as leverage against the US. This was unconvincing to myself and others for a few reasons:
1. US treasuries have a vast pool of buyers that traded these treasuries at a discount, making Beijing selling/buying less bonds less effective to economically pressure the US
2. Beijing doing so would also hurt itself by selling said treasuries by removing themselves from a (relatively) high-yielding and safe bond market.
Underpinning these reasons were assumptions that: US treasuries are exceptionally safe, US is confident in the stability of the bond market, Beijing’s exposure to US treasuries is so high such that the cost is too immense.
All of this has changed with the past few years: As this article notes, US treasuries are less safe due to rising debt, the stability of the bond market is being challenged by botched responses from Warsh/Bessent along with competition against corporate debt and US equities, and Beijing has significantly slowed its purchases of US bonds which gradually cuts down on their own dollar exposure.
The author argues that this is enough for Beijing to wield significantly leverage against Washington; Given Bessent’s intervention in the Yen wanted to ensure the stability of the bond market by selling Euros rather than USD, Beijing would not need to sell off all its bonds, but slow down purchases or sell enough such that bond yields would spike, as Washington has demonstrates little tolerance these days for higher borrowing costs.
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It’s been previously suggested by commentators in previous US-China economic conflicts that China could use it’s vast holdings of US treasuries as leverage against the US. This was unconvincing to myself and others for a few reasons:
1. US treasuries have a vast pool of buyers that traded these treasuries at a discount, making Beijing selling/buying less bonds less effective to economically pressure the US
2. Beijing doing so would also hurt itself by selling said treasuries by removing themselves from a (relatively) high-yielding and safe bond market.
Underpinning these reasons were assumptions that: US treasuries are exceptionally safe, US is confident in the stability of the bond market, Beijing’s exposure to US treasuries is so high such that the cost is too immense.
All of this has changed with the past few years: As this article notes, US treasuries are less safe due to rising debt, the stability of the bond market is being challenged by botched responses from Warsh/Bessent along with competition against corporate debt and US equities, and Beijing has significantly slowed its purchases of US bonds which gradually cuts down on their own dollar exposure.
The author argues that this is enough for Beijing to wield significantly leverage against Washington; Given Bessent’s intervention in the Yen wanted to ensure the stability of the bond market by selling Euros rather than USD, Beijing would not need to sell off all its bonds, but slow down purchases or sell enough such that bond yields would spike, as Washington has demonstrates little tolerance these days for higher borrowing costs.