America thinks China’s $1.1T in Treasuries don’t matter in trade fight

The United States doesn’t believe China’s $1.1 trillion in Treasury holdings matter in the ongoing trade war. The comment came straight from Treasury Secretary Scott Bessent, who said the debt pile gives China no power over U.S. policy, according to a report from Reuters.

This is happening as tensions rise and investors grow nervous about whether Beijing will weaponize its foreign exchange reserves to retaliate against the White House.

The concern started growing after the U.S. government, led by President Donald Trump, announced new tariffs earlier this month. As a result, traders sold off American government bonds, pushing the 10-year Treasury yield to 4.59% last week. 

It settled at 4.3% by April 16, still higher than levels before Trump’s announcement. Investors feared the worst-case scenario: China sells off part or all of its U.S. debt, pushing up American interest rates and causing panic in the financial system.

China can’t easily dump Treasuries without burning itself

Chinese officials and state media have floated the idea for years. Some argued that the debt holdings should be used as leverage to put pressure on Washington. But that option is not simple.

Brad Setser, a senior fellow at the Council on Foreign Relations, said China’s total Treasury exposure is closer to $1.1 trillion, even though official U.S. data lists $784 billion in direct holdings as of February. Much of the difference comes from holdings routed through offshore accounts.

Still, Scott Bessent told reporters this week that dumping those Treasuries would not work. He said, “Those holdings provide no leverage whatsoever.” The U.S. believes any move by China to use the bonds as a weapon would hurt Beijing more than Washington.

If China started selling Treasuries, it would be impossible to hide it. Markets would find out, and that would cause panic. The fear of a full sell-off would cause bond prices to crash and interest rates to jump. That would also destroy the value of China’s remaining bonds, leaving it with heavy losses.

The Chinese government knows this. In 2015, when the yuan was under pressure, the People’s Bank of China sold a large chunk of its U.S. debt to support its currency. It lost a major portion of its reserves in the process and has been cautious ever since.

The bank now avoids using direct Treasury sales to defend the yuan, but that strategy doesn’t work without dollar reserves as backup. If Beijing doesn’t hold enough dollar debt, it loses one of the few tools it has left to stop the yuan from collapsing.

Even selling just a small amount to send a message would come with consequences. It would start rumors of a full sell-off, which could cause global panic. That would drive up the yuan’s value and hurt Chinese exports, especially now that Trump’s tariffs are already hitting hard.

There’s also the question of what China would do with the money from selling Treasuries. Scott said the Chinese central bank would likely have to buy back yuan, which would raise its value. That makes their goods more expensive overseas and adds more pain for exporters.

China could hold the dollar cash instead or buy other foreign bonds, but that depends on whether countries like Japan or Germany would welcome those purchases.

Even if Beijing wanted to use its bond holdings as a weapon, the move would be hard, risky, and most likely backfire. The only way it would make sense is if China allowed its currency to float freely.

But President Xi Jinping has made it clear that he wants the yuan to stay stable, which means that kind of plan is off the table for now.

Meanwhile China’s foreign ministry officials have said that they would “pay no attention” to the White House’s “tariff numbers game.”

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