On Monday, economist Peter Schiff provided a counter-narrative to the claim that China won't sell U.S. Treasuries.
What Happened: In a short post on X, Schiff challenged claims that China “won’t sell [U.S.] treasuries as doing so would strengthen the Yuan,” resulting in further damage to the attractiveness of the nation’s exports.
Schiff cites the high 145% tariff that the U.S. has already levied on China, due to which a weaker Yuan will not “move the needle.” Meaning that regardless of whether the Renminbi strengthens or weakens against the U.S. dollar from this point, Chinese exports are essentially priced out of American markets due to the tariffs.
He added that China is “better off with a stronger Yuan to improve domestic consumption,” as this will lead to a rise in consumer purchasing power, and thus higher domestic demand.
Schiff also made a subtle reference to the U.S. misstep on tariff escalations, with it now having reached a point where any additional levies beyond 145% are meaningless. China, on the other hand, still holds $760 billion worth of U.S. Treasuries, providing it with significant leverage.
Why It Matters: According to Philipp Ivanov, the founder of Geopolitical Risks & Strategy Practice (GRASP), the dumping of U.S. treasuries by China would be an “extreme response” and would be unlikely for now.
“It will do quite a significant damage to the United States, but the damage to China might be even bigger,” he said to CNBC TV18, before adding that it would be the country’s “last resort.”
China’s $760 billion in U.S. Government bonds is clearly a bargaining chip, which can spike yields if sold aggressively, especially with the Treasury planning to issue $2 trillion in new debt this year, in addition to rolling over another $8 trillion in maturing bonds, according to a report by Bloomberg.
However, according to Mark Williams, the chief Asia economist at Capital Economics, trying to get rid of that much debt this quickly would “backfire hard.” Williams compares this tactic to “lobbing a hand grenade at someone sitting across from you in a room,” speaking with the Telegraph.
Price Action: At the time of writing, US 3-year, 10-year, and 30-year treasuries have seen their yields rise by 3, 21, and 28 basis points, respectively, since the beginning of this month, amidst a rout in the equity markets.
Photo Courtesy: Bori Slim On Shutterstock.com
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