China sells $48.9 billion in US Treasuries in one quarter, analyst says ‘clear aim’ to shed US dollar holdings on display – The Daily Hodl

The world’s second largest economy is steadily unloading billions of dollars into US Treasuries.

New data from the US Treasury Department shows that China has reduced its Treasury holdings from $816.3 billion in December last year to $767.4 billion in March.

This is a quarterly decrease of $48.90 billion.

Bloomberg Intelligence chief Asia foreign exchange and rates strategist Stephen Chiu says a clear trend is developing.

“Since China is selling both, despite the fact that we are closer to a Fed rate cut cycle, there should be a clear intention to diversify away from US dollar holdings.”

The decline in China’s ownership of US Treasuries comes as former International Monetary Fund (IMF) deputy director Desmond Lachman warns that a new trade war between the two largest economies is brewing.

In a post at the Washington-based American Enterprise Institute, Lachman says both President Biden and former President Trump are drafting “punitive import tariffs” against China.

“In addition to a 100% import tariff on Chinese electric vehicles, Biden announced that the US will triple import tariffs on Chinese steel and aluminum and double import tariffs on Chinese semiconductors and solar cells.

Not to be outdone, former President Donald Trump is indicating that if re-elected president, he will raise tariffs on Chinese electric vehicles to 200% and impose a 10% tariff on all US imports.

According to Lachman, the increase in import tariffs would likely prompt China to retaliate, leading to an escalation that would hurt both countries. If a full-blown trade war materializes, Lachman warns it will add to inflationary pressure in the US as Chinese companies raise prices to cover the additional costs of entering the US market.

“The Federal Reserve is already finding inflation unexpectedly resistant to rising interest rates. A new trade war would only further delay the start of a Fed rate-cutting cycle, depriving the country of a boost to growth.”

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