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What Would Happen If China Started Selling Off Its Treasury Portfolio?
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What Would Happen If China Started Selling Off Its Treasury Portfolio?

Just How Important Have Foreign Inflows Been to the Treasury Market?

Brad W. Setser
CFR, 2018
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Recommendation

With trade tensions looming and China in the cross hairs of the Trump Administration’s tariff bazooka, one of many concerns involves the financial impact of a full-scale fight between the world’s two largest economies. China has several possible responses to US-imposed tariffs, and while retaliatory duties or currency depreciation are possible, economist Brad W. Setser previews a third option: Chinese leaders divesting the country’s $1.5 trillion US Treasury and agency securities portfolio. getAbstract recommends this insightful though technical report to analysts and economists for its nuanced look at fiscal and monetary policy salvos in a trade war.

Summary

In response to US trade deficits, President Trump has unleashed tariffs on Chinese goods, with talk of escalating the levies to $450 billion of Chinese imports. China can’t counter this move by slapping tariffs on an equal number of US goods, because the United States only exports $170 billion of products to China and Hong Kong.

Given this disparity, Chinese officials may consider alternative measures, including tighter regulations on American companies operating in China or currency depreciation to boost net exports.Policy experts...

About the Author

Brad W. Setser is a senior fellow at the Council on Foreign Relations.

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