The move comes as trade tensions are expected to heat up between the U.S. and China in 2018.
China – the largest foreign holder of U.S. Treasuries – is considering either slowing, or stopping their purchases.
As first reported by Bloomberg, “Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. The news comes as global debt markets were already selling off amid signs that central banks are starting to step back after years of bond-buying stimulus. Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.”
China’s purchases of Treasury Bonds help the U.S. finance their continued budget deficits, creating a serious strategic vulnerability which China may be seeking to exploit.
This comes as the United States is said to be considering putting actions behind Donald Trump’s tough-on-China rhetoric from the campaign trail.
Trump had promised a series of trade measures, including tariffs and labelling China a currency manipulator, but so far the tensions have been muted.
However, it is believed that Trump will begin pushing for a tougher approach to China, particularly as U.S. midterms approach and the Republicans seek to hold on to the blue-collar supporters they won in 2016.
China’s musing about reducing or halting sales of Treasury Bonds can therefore be seen as a possible response to tougher trade measures, as China could drive up the cost of borrowing for the U.S. government.
The move by China also takes place as tensions remain high on the Korean Peninsula, with the U.S. expressing disappointment that China’s hasn’t done more to restrain the Kim Jong Un regime.
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