For years I’ve received questions from investors about China’s $1 trillion-plus ownership of U.S. debt.
After I wrote “Stocks will crash if Trump keeps his campaign promises on China,” the most poignant question was: Could China ruin the U.S. economy by doing something with the Treasury bonds it holds?
China’s President Xi arrived in America on April 6 to meet President Trump. There was a lot at stake. Trump had harsh words about China’s currency manipulation and supposedly unfair trade constraints. But Trump could be hampered by the U.S.’s indebtedness. (For a breakdown of Treasury ownership, please click here.)
The false answer that seems true
It’s natural for us to react to the U.S. debt held by China in a manner similar to the way we react when we owe a lot of money to someone, such as a bank or a credit card company. In most cases, the lender holds all the cards. The conclusion that many are reaching regarding the debt owned by U.S. to China is driven by their own personal experiences with debt.
So could China ruin the U.S. economy by doing something with the U.S. debt it holds? It turns out, China did not use its $1 trillion weapon and simply surrendered to Trump. The surrender came in the form of a 100-day plan to address the goods-trade imbalance between the two countries.
As a note of caution, investors should look at the plan as simply “talk” that may face many obstacles in execution. As has been common with Trump’s initiatives, there are not many details to make a good judgment. China using the $1 trillion weapon to trump Trump is not completely off the table…Read more at MarketWatch
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