Last resort: will Beijing go to dump American papers?
The clash between the US and China begins to threaten the stability of the entire world economics. President Donald Trump introduced new duties against Beijing, he answered with a further devaluation of his national currency. The head of the White House called the PRC a “currency manipulator,” which implies the imposition of regular sanctions.
The American television channel CNN warned with obvious caution that from the Celestial Empire one can now expect a "response" in relation to the US public debt. How realistic is the Chinese dumping of "treasurers" in the amount of $ 1,1 trillion, and what will this mean for all parties to the conflict?
Beijing is the largest United States government debt holder in the world. CNN reports:
Obviously, this factor should be taken into account when starting a trade war with the PRC. The channel describes the possible consequences of dumping such a large package of “treasurers”: the value of US government debt bonds will fall sharply, interest rates, on the contrary, will rise, which means that the cost of loans will become more expensive. This, in turn, will lead to a slowdown in the begun growth of the American economy, which President Trump, who has entered the next election campaign, takes credit for himself.
The argument is very weighty. However, a number of experts believe that Beijing will not use this trump card at full capacity. And that's why.
At first, if necessary, the US Federal Reserve will be able to redeem bonds, even 1,1 trillion. This will happen, including if all other holders of the US government debt want to get rid of securities. This will not cause the collapse of the American economy, but there will be other negative consequences that will affect everyone, including China itself. Recall that the American market is the main for China. To bring it down means, in essence, to slice a chicken that lays golden eggs.
Secondly, the question arises, where can Beijing put the freed assets. Financial expert Anton Tabakh comments on possible prospects:
A fall in gold prices will negatively affect the value of the reserves of countries that are rapidly buying it, in particular, in our Russian Federation. Also, this will cause alarming “seething” in the financial markets.
Washington and Beijing are clearly aware of the possible consequences of their “adult” struggle. Their goal is not the collapse of each other, but the search for a compromise. Just, as long as the parties have not yet agreed on the terms of the trade transaction, they will put pressure on each other within the acceptable range.
Most likely, China should not expect the dumping of all the “treasurers,” but the exponential sale of part of its portfolio, as well as a further devaluation of the renminbi.
The American television channel CNN warned with obvious caution that from the Celestial Empire one can now expect a "response" in relation to the US public debt. How realistic is the Chinese dumping of "treasurers" in the amount of $ 1,1 trillion, and what will this mean for all parties to the conflict?
Beijing is the largest United States government debt holder in the world. CNN reports:
Beijing has a trump card up its sleeve: China is the largest lender to the US government. Theoretically, China could cause a panic in the US government debt market if it gets rid of part of US Treasury securities.
Obviously, this factor should be taken into account when starting a trade war with the PRC. The channel describes the possible consequences of dumping such a large package of “treasurers”: the value of US government debt bonds will fall sharply, interest rates, on the contrary, will rise, which means that the cost of loans will become more expensive. This, in turn, will lead to a slowdown in the begun growth of the American economy, which President Trump, who has entered the next election campaign, takes credit for himself.
The argument is very weighty. However, a number of experts believe that Beijing will not use this trump card at full capacity. And that's why.
At first, if necessary, the US Federal Reserve will be able to redeem bonds, even 1,1 trillion. This will happen, including if all other holders of the US government debt want to get rid of securities. This will not cause the collapse of the American economy, but there will be other negative consequences that will affect everyone, including China itself. Recall that the American market is the main for China. To bring it down means, in essence, to slice a chicken that lays golden eggs.
Secondly, the question arises, where can Beijing put the freed assets. Financial expert Anton Tabakh comments on possible prospects:
Our Russian Central Bank can withdraw its reserves from US securities and go to yuan and gold, but Chinese entry into the gold market is guaranteed to destabilize the market, and the prospect of investing in ruble securities for China is more speculative than real.
A fall in gold prices will negatively affect the value of the reserves of countries that are rapidly buying it, in particular, in our Russian Federation. Also, this will cause alarming “seething” in the financial markets.
Washington and Beijing are clearly aware of the possible consequences of their “adult” struggle. Their goal is not the collapse of each other, but the search for a compromise. Just, as long as the parties have not yet agreed on the terms of the trade transaction, they will put pressure on each other within the acceptable range.
Most likely, China should not expect the dumping of all the “treasurers,” but the exponential sale of part of its portfolio, as well as a further devaluation of the renminbi.
Information