WILL CHINA USE

Its US$ 1.2 tril­lion of US debt to fight the trade war?

Daily Mirror (Sri Lanka) - - TOP STORIES FROM AROUND THE WORLD -

China’s prom­ise to strike back af­ter US Pres­i­dent Don­ald Trump in­creased tar­iffs on US$200 bil­lion worth of Chi­nese goods on Fri­day has height­ened un­cer­tainty on how es­ca­lat­ing trade ten­sions be­tween the two coun­tries will un­ravel and raised fears among in­vestors and an­a­lysts of worst-case sce­nar­ios that will hurt global growth.

If China was un­will­ing to play ball on Trump’s terms, Beijing, an­a­lysts said, not only could re­tal­i­ate by im­pos­ing coun­ter­vail­ing tar­iffs of its own, but it also has a range of fi­nan­cial arse­nal power at its dis­posal to pun­ish the US.

For starters, China could fire back by dump­ing its vast hold­ings of US gov­ern­ment debt. Flood­ing the market with trea­suries would push down US bond prices and cause the yields to spike. That would make it more costly for US com­pa­nies and con­sumers

to bor­row, in turn de­press­ing Amer­ica’s eco­nomic growth.

Cliff Tan, East Asian head of global mar­kets re­search at MUFG Bank said it was un­likely that China would choose to scale back its hold­ings in US trea­suries sharply as that would hurt its own in­ter­ests and fuel “ex­treme” market volatil­ity.

Min­utes af­ter the US raised tar­iffs from 10 per cent to 25 per cent on Fri­day, the Min­istry of Com­merce re­it­er­ated its tough stance in the trade war, say­ing in a state­ment, “we’ll have no choice but to take the necessary coun­ter­mea­sures” BEJING (COUR­TESY SOUTH CHINA MORNING POST), 10 MAY 2019 -

China holds the big­gest vol­ume of US Trea­suries in the world (South China Morning Post)

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