SUMMARY
On June 6, Singapore’s Finance Minister Heng Swee Keat asserted that the recent tit-for-tat trade dispute between the US and China likely carries the major risk of miscalculation, potentially spelling possible chaos on the global economy. Both the US and China appear to be exercising relatively aggressive negotiation tactics, but China’s holdings of US bonds may be Beijing’s trump card in the end. Chinese reporters point to this as a “nuclear option” which it can threaten to sell off to other entities. This is unlikely, however, as they are a liquid and secure form of maintaining foreign exchange reserves. This is especially important as Beijing’s foreign reserves continue to decrease and its foreign debt repayments continue to increase. China is currently the US’s largest debt holder, having amassed about 8% of total American debt.
FAO GLOBAL ASSESSMENT
It is unlikely that China would use it's holding of US debt to push the US in trade negotiations. This would be equally detrimental to China. Policy makers are likely to utilize targeted sanctions that hit traditional "red states" in the US which significant electoral power in the republican party. These are likely to be agriculture and industry specific and proportional to any US actions. While both sides may feel validated in the argument, a prolonged trade war threatens many small and medium size enterprises that cannot outlast or diversify fast enough to weather the storm.
Related links
- Channel News Asia – US-China trade war and its impact on the global economy: Heng Swee Keat
- South China Morning Post – Yes, Beijing will stick to US government bonds, no matter what happens on the trade front
- Forbes – China’s Largest Companies Prove Why It’s The World’s No. 2 Economy
Custom Intelligence Briefs are available for corporate account holders. We can provide daily or weekly updates on local market conditions, policy impacts, regional events, or industry changes that affect operations or strategy.
ABOUT CHINA INTELLIGENCE BRIEFS
The China Intelligence Briefs are the start of a global initiative to provide context and recommendations to businesses, non-profit organizations, and policy makers who are looking for specific examples of opportunity or disruption from global events. While analyzing the macro problems we often identify specific issues that affect our clients and readers. Identifying both opportunities & challenges allow us to better identify solutions at home and abroad for a wide range of disciplines. In addition to the China Intelligence Briefs, we maintain detailed notes from interviews, overseas trips & business missions, conferences, conventions, and private events. We provide access to these notes and other analytical products for clients and paid subscribers.
Headquartered in Washington, DC with Affiliates in China
Our Analysts, Associates, Consultants, and Interns all possess extensive experience in a foreign country and a foreign language capability. Our talent pool includes graduates from the elite Tsinghua University in Beijing, Georgetown University, George Washington University, UC Berkeley, and University of South Carolina. Being based in the Washington, DC Metro Area provides our team the advantage to build relationships with policy makers, foreign diplomats, business leaders, and non-profit groups providing a holistic view of global policy and the impacts to the business community. In addition to being based in the Washington, DC area, we retain the input and advice from affiliates located in China. This allows us to maintain on-ground awareness of changing business and political environment conditions and facilitate client projects between the two countries and the greater Asia continent.
All Intelligence Briefs are reviewed and guided by a Senior Analyst before publication.
