Jeff Cox at CNBC says China’s ‘self-destructive nuclear option’ in trade war: Selling US Treasury bonds.

China currently owns $1.13 trillion in Treasurys, a fraction of the total $22 trillion in U.S. debt outstanding but 17.7% of the various securities held by foreign governments, according to data from the Treasury and the Securities Industry and Financial Markets Association. Should the Chinese decide to walk away or reduce their role in the market, that, at least in theory, could create a substantial dislocation for a country such as the U.S. that relies so much on sovereign entities to buy its paper.

“It’s a self-destructive nuclear option,” said Robert Tipp, chief investment strategist and head of global bonds for PGIM Fixed Income. “Maybe it helps them as a bargaining chip, but it’s endangering the value of something they’re deeply involved in.”

“To me, that is the biggest worry. This is really the biggest weapon they have,” said Sung Won Sohn, professor of economics at Loyola Marymount University and president of SS Economics. “They need to do more to counter the United States. So if push comes to shove, that’s what they are going to resort to.”

Treasury yields actually moved lower during Monday’s stock market panic selling despite more chatter of a China bond market retaliation. A tweet from Hu Xijin, editor in chief of the state-run Global Times, noted that “Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically.”

Not Understanding Mathematical Reality

Tipp is on the right side of the argument, but he does not present a clear case why. The rest of the comments are nonsense.


The mathematical reality of the situation is that as long as China runs a trade surplus with the US, China "must" accumulate US assets, over the long haul. It is a mathematical certainty.

China has at times over the past couple of years sold treasuries. But that is not because China wanted to, but rather because China sold treasuries to buy yuan to shore up the yuan and stop capital flight.

For the most part, China does not want the yuan to rise. A cheap yuan helps Chinese exporters.

Buying US Assets

China does not have to buy treasuries. It could buy US equities, gold, or US businesses. But Trump would not let the latter happen.

Buying equities would put China at the mercy of a US stock market decline.

The safest, most liquid choice for China is to accumulate US treasuries with its trade surplus.

That is what China does and will continue to do. There is no realistic option of China dumping US treasuries.

Mike "Mish" Shedlock

Nuclear Option of China Dumping US Treasuries vs Devaluation: Take II

The alleged "nuclear" option of China dumping treasuries is Much Ado About Nothing. A devaluation is another matter.

Setser vs Rosenberg: China's "Nuclear" Option of Dumping Treasuries

Brad Setser and David Rosenberg each discuss the "nuclear" option of China dumping treasuries in a trade war escalation.

Understanding the Trade "Nuclear" Threat, China Dumping Treasuries

It's highly unlikely China would dump US treasuries in a trade war. Yet, the talk surfaces all the time.

China's Alleged "Victory Plan" Over the US Dollar

Every few months someone promotes complete silliness regarding China displacing the US. Here we go again.

Nuclear Option Used; Gorsuch Heads for Supreme Court: Good Thing or Not?

The alleged “nuclear” option of changing the filibuster rules on Supreme Court nominees has been invoked.

US Treasury Declares China a Currency Manipulator Under Orders From Trump

It's now official. The US Treasury says China is a currency manipulator. What's next?

China Faces Interest Rate Dilemma With No Winning Options

Michael Pettis at China Financial Markets has an interesting chain of Tweets on China's unsolvable interest rate mess.

China Spotlight: Capital Flight Intensifies, US Treasury Reserves Plunge, Capital Controls Increase

A reader pinged me the other day about China “dumping” US treasuries.

Trump Threatens China With a Big Fine: So What? All Mouth, No Action?

Trump is bashing China once again. This time, Trump proposes a big "fine" over an alleged theft of intellectual property