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What if China uses its "most powerful weapon" in the US trade war?



The new move of the US-China trade war, catalyzed by US President Donald Trump, struck the yuan hard. To avoid depreciating the Chinese currency, Beijing could use a powerful "weapon" – the sale of its US bonds.

Finally, the peace expected during the US-China trade war was not reached, though at the end of April the US president said bilateral talks were going well. But the imposition of new tariffs on Chinese products has put an end to all hopes of improving trade relations, Russian journalist Natalia Dembinska says in his article on Russian version of Sputnik.

The new turnaround in the trade war led to a devaluation of the Chinese currency, the yuan that fell by 6.9 yuan per dollar, a currency exchange rate that had not been recorded since December 2018. The Chinese currency fell by roughly 2, 5%, according to The Wall Street Journal.

"The weak yuan lowers Chinese exports and allows Chinese goods to remain on the US market after the imposition of new restrictive measures." But the devaluation of the Chinese currency makes imports from the United States more expensive and capital flight from the US is increasing. country, "the author points out.

Gavekal, the Chen Long expert, believes that an alarming message can be read through the current depreciation of the Chinese currency. If Beijing allows the devaluation to reach between 3% and 5%, "China's slower economy can deflate the rest of the world, and world markets are likely to be frightened just after the devaluation of the yuan that has happened." in 2015. "

Also: Fearless China has several opportunities to react to the US in the war

Dembinska reminds that Trump has threatened to impose more tariffs on imports from China worth $ 325,000 million. For its part, China can react in a radical way and reduce its investment in the US debt. According to the editor-in-chief of the Chinese newspaper "Global Times" Hu Xuzhin, "many scientists think this opportunity and to discuss how Beijing can apply this measure. "

The result of this scenario, however, is unlikely, as it could lead to a devaluation of US bonds, which will cause more damage to China than to the US. The Asian country currently has $ 1.1 trillion bonds, Bloomberg reports.

"The tension that spreads on world markets may cause Beijing to reduce its reserves of American bonds so it does not revenge the US but defend its currency if it suffers a free fall," writes journalist Liz McCormick. Your article about the US agency.

China also emphasizes that cooperation is the only right path to Beijing and Washington

This is not the first time that the Asian country will apply such a measure, according to Dembinska. China sold $ 188 billion worth of dollars in 2016 to strengthen its currency.

"Selling bonds from China is a risk, but this measure has nothing to do with revenge, but the way Beijing can manage its currency," said analyst Gene Tanoutso of Columbia Threadneedle Investments.

According to Dembinska, the bond issue allows Washington to fund its rising federal spending, stimulate economic growth, and maintain the relatively low interest rate in the United States.

Also: Trump warns China not to wait until 2020 for a trade deal with the United States

"China has a so-called" nuclear option "that will escalate the trade war with the US The sale of American bonds will potentially raise the interest rate that will cause significant damage to the largest economy in the world," CNBC wrote.

Dembinskaya stresses that the possible sale of bonds from China will dramatically increase US bond yields and make borrowing more expensive for US companies and consumers. As a result, the economy of the North American country will slow down.

"The possible collapse of the dollar will hit international markets more strongly than the financial crisis of 2008," the journalist concluded.


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