China has a powerful weapon against the United States

China has a powerful weapon against the United States The country owns 1.1 bdd in US Treasury bonds, which it could use to destabilize the US economy. In the trade war between the United States and China, it has been a very complicated day. China devalued the yuan after US President Donald Trump's government threatened to apply tariffs to almost all Chinese exports. Then, the United States called China "currency manipulator", deepening the break. The exchanges have shaken the world markets and threaten the global economy. What will happen next is an unknown. China has said it is ready to fight, if necessary. And he has an enormously powerful weapon under his sleeve: he is the largest creditor of the US government. In theory, China could trigger a panic in bond markets if it got rid of part of the $ 1.1 trillion in US Treasury bonds it owns. By releasing an avalanche of US Treasuries, the price would collapse, which would raise yields (or interest rates) and cause an increase in the costs of US loans. But there are very good reasons why China is unlikely to pull the trigger. First, because it might not have the desired effect. Second, it could be counterproductive to its own economy. "It is probably not the most effective tool available," said Brad Setser, a member of the Council on Foreign Relations and former Treasurer of the United States. Nuclear option China has taken steps in recent days to shore up the yuan, noting that depreciation was intended to be a warning signal. But President Trump could still strike back, even if the government sticks to his plan for more business talks in September. It is a flammable situation that is ready for further climbing. That's where the concern for US bond holdings in China comes into play. If China really wants to agitate the United States, according to this reasoning, it could destroy the value of US Treasuries by throwing them into the market. That would cause the yields to skyrocket. And given that Treasury yields serve as a benchmark for commercial and consumer credit, the price of corporate debt, mortgages and car loans would increase, slowing the economic growth of the United States. The dollar could also suffer as the alarm spreads. China's dilemma In reality, such a measure carries great risks and does not align with China's current strategy, according to Michael Hirson, the head of China's practice at the Eurasia Group consultancy. He previously served as the main representative of the United States Treasury in China. "We are clearly in a climbing cycle," said Hirson. "But I think that China's main motivation at this time in the trade war is being able to resist Trump's pressure. We could say that 'resistance comes first' ”. In that sense, getting rid of US Treasury bonds could be counterproductive. If China starts a liquidation sale of US bonds, it would highlight the value of its remaining holdings. You need that reserve to defend your currency. Experts believe that China will try to design a controlled fall of the yuan in the coming months, which will allow it to absorb some of the pressure on the economy without causing an exodus of capital from the country. Another deterrent: a massive sale of US Treasuries would undermine China's momentum to attract foreign investment to its stock and bond markets. "He needs that foreign influx to cushion his currency during the trade war," said Hirson. "If China uses Treasury holdings as a weapon, that sends a very alarming message to global investors." Questionable impact There is also the question of whether abandoning US Treasury bonds would affect the United States in a real way. Setser said he is skeptical about it. "By the time it begins to have a huge negative impact on the United States, the Fed will probably react," he said. In a 2012 report to Congress, the Department of Defense noted that the Federal Reserve is "fully capable" of buying US Treasury bonds that China injects into the market in order to curb economic consequences. In addition, China has few alternative locations to store its 3.1 trillion dollars in foreign reserves.

• 2019-08-19T17:03:28+00:00
• Duration: 06:22

• STADOSUNIDOS
• China
• guerra
• armas

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