China could reduce its U.S. government debt holdings if President Donald Trump chooses to retaliate against Beijing over claims the Chinese withheld critical information about COVID-19, reports the South China Morning Post.
Trump in recent days has told aides and others that China has to pay for the coronavirus outbreak and publicly floated demanding billions in compensation. Per The Washington Post, senior officials are expected to meet Thursday to begin mapping out a strategy for seeking out retaliatory measures.
“It's such a crazy idea that anyone who has made it should really have their fitness for office reconsidered,” Cliff Tan, East Asian head of global markets research at MUFG Bank, told SCMP. “We view this as largely a political ploy for [Donald Trump’s] re-election and a cynical one because it would destroy the financing of the US federal budget deficit.”
The move by China would send U.S. interest rates soaring and make borrowing more costly for the government, according to analysts who spoke with SCMP.
Reuters on Sunday said the bluntest way to void government borrowing from China is to default.
“That’s the financial-markets equivalent of a nuclear war. It’s not easy. The Treasury can’t easily see who holds individual securities, which are mostly parked in accounts at Federal Reserve banks,” writes John Foley. “China buys through intermediaries, many abroad. Defaulting would send the $18 trillion Treasuries market into conniptions, just as Washington needs to borrow heavily. Default is also technically forbidden by the Constitution.”
Solange Reyner is a writer and editor for Newsmax. She has more than 15 years in the journalism industry reporting and covering news, sports and politics.
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