As the trade war between China and the United States continues to escalate, fears are spreading that the conflict may spill over into dangerous new territory: the financial markets.
US Treasury Secretary Scott Bessent added to the speculation on Wednesday when he declined to rule out the possibility that Washington may delist Chinese stocks from US exchanges, during an interview on the Fox Business Network.
“I think everything’s on the table,” Bessent said. “That will be President Trump’s decision.”
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Meanwhile, commentators have voiced concerns that China could consider dumping its US Treasuries as a retaliatory measure or in an attempt to avoid a US default – a move that could sow chaos in the financial markets.
The US government bond market has seen a sharp sell-off in reaction to US President Donald Trump’s tariff policies over recent days, with some traders raising doubts about the US Treasuries’ status as the world’s safest asset.
Yields on 30-year US bonds have surged by about half a percentage point so far this week, with Trump’s abrupt decision to pause the implementation of “reciprocal” tariffs on a string of countries on Wednesday failing to spark a turnaround in the market.
That could suggest a generalised aversion to US assets in global financial markets, former US Treasury Secretary Lawrence Summers wrote in a post on the social platform X on Wednesday.
“We are being treated by global financial markets like a problematic emerging market,” he said. “This could set off all kinds of vicious spirals, given government debts and deficits and dependence on foreign purchasers.”
China held about US$760 billion of US government debt as of January, making it the second-largest foreign holder of the asset class after Japan. That potentially gives Beijing the power to spark a large sell-off of US Treasuries, with unpredictable consequences.
The future trajectory of US Treasury bonds remains “highly uncertain”, according to Yang Panpan and Xu Qiuyan, researchers at the Chinese Academy of Social Sciences.
“For China, which holds the dual role of being a major creditor of US debt and a potential provider of yuan-denominated safe-haven assets, it is even more crucial to closely monitor the future of US Treasuries,” they wrote in an article on Wednesday.
“China should not resort to selling US Treasury bonds as a countermeasure, but it must closely monitor the sustainability of US debt from the perspective of safeguarding its overseas assets,” they added.
Billionaire investor Ray Dalio warned the trade war may prove to be a far more significant inflection point than many realise, as it drives fundamental changes in global markets and economics.
“We are seeing a classic breakdown of the major monetary, political and geopolitical orders,” the founder of Bridgewater Associates wrote on X on Tuesday.
The multilateral, cooperative world order the US led is being replaced by a unilateral, power-rules approach, where the US remains the largest power and is shifting to a unilateral, “America first” approach, he said.
“We’re now seeing that manifest in the US-led trade-war, geopolitical war, technology war, and, in some cases, military wars,” he said.
Additional reporting by Mandy Zuo
More from South China Morning Post:
- After Trump’s ‘tactical retreat’, analysts warn ‘crazy’ week is just the beginning
- Chinese exporters said to be ditching shipments mid-voyage to avoid crushing Trump tariffs
- Who will feel the pain? US, China seek ‘economic resiliency’ in endurance test: economists
- How dependent are these 6 major Asian economies on the US market?
- US inflation? China is more worried the trade war will make goods too cheap
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