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Home » Tensions Mount as China Cuts Ties With Record Number of U.S. Treasuries
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Tensions Mount as China Cuts Ties With Record Number of U.S. Treasuries

FeyisayoBy FeyisayoJune 29, 20246 Mins Read
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U.S. and Chinese flags
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Many people know that China and the U.S. have always had a sort of rocky relationship. With the changes in leadership, the two countries have been involved in a couple of back-and-forth heated debates. 

Table of Contents

Toggle
  • China Cuts Off U.S. Treasuries
  • The State of China’s Economy
  • China’s Foreign Reserves 
  • Japan Holding U.S. Bonds 
  • China’s Strategic Moves
  • Geopolitical Tensions 
  • Worries About Security and Interest Rates
  • Wall Street Impact 
  • BRICS Countries 
  • The U.S. Is in Debt 
  • High Tariffs 
  • Worries About a Possible Impact
U.S. and Chinese flags
Source: Pinterest

However, the Biden administration has been able to keep things calm between the two countries for years. Now, it seems things may be rocky again as China is cutting ties with many U.S. treasuries. 

China Cuts Off U.S. Treasuries

The Chinese government has shocked the United States by cutting ties with many U.S. treasuries, leading to speculation that tensions may begin to rise again between the two nations. 

U.S. and Chinese flags
Source: Pinterest

The agency debt bonds are worth $53.3 billion. Many do not yet know why this is happening but there are many speculations that it is because Donald Trump could be the U.S. president again. 

The State of China’s Economy

China is currently in a very confusing position. There is a current downward spiral in its economy, and there are several issues with the property market and also with its manufacturing industry. 

China's Flag
Source: Pinterest

Therefore, many economists and investors are concerned about the country’s situation and are trying to figure out their next moves. 

China’s Foreign Reserves 

China is the world’s largest holder of foreign exchange reserves, worth about $3.2 trillion as of April 2024. Experts estimated that about 60% of those funds were U.S. dollars, although the specific currencies are not public information. 

China's national bank
Source: Pinterest

However, a report on China’s stash after the first quarter has shown that the U.S. treasuries fell to under $40 billion, while the agency bonds also dropped to $10 billion. 

Japan Holding U.S. Bonds 

On the other hand, Japan is the largest foreign holder of U.S. treasuries, estimated at $1.1 trillion. However, this grew by $51.4 by the first quarter of the year. Therefore, many are curious to know why the funds with Japan are thriving and those with China aren’t. 

Japan's Flag
Source: Pinterest

Could the decline be due to China’s decision not to invest in bonds anymore or simply to the country’s loss of money? 

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China’s Strategic Moves

The former might be the case, as reports also show that China is trying to strengthen its financial portfolio with many countries around the world with the exclusion of the U.S. 

China's President Xi Jinping
Source: Pinterest

This is a very strategic move by the Asian country, and it can be highly beneficial for them in the future. However, the impact on the U.S. could be very disastrous. 

Geopolitical Tensions 

When China invested a large amount of its assets in the U.S., this placed the country in a tricky geopolitical situation. If an urgent situation arises in the U.S., the government would expect China to help due to their financial interests and trades. 

Dollar and Yen
Source: Pinterest

Therefore, China’s decision to spread its assets to many other countries is a smart one that would reduce the country’s impact on geopolitics. 

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Worries About Security and Interest Rates

The Chinese government has two main issues with the U.S., and they are attributed to the country’s security and interest rates. The security issue is because of the upcoming presidential elections, which could see Trump get back into office. 

China's national bank
Source: Pinterest

The U.S.’s interest rates are currently low, and China would prefer to do business with countries that have higher interest rates. 

Wall Street Impact 

Before China moved most of its finances elsewhere, it started by offering several financial deals to many countries that could help them get out of debt. 

Wall Street
Source: Pinterest

However, most of these countries, most of which are on Wall Street have noted that these deals were not in the best interest of the countries. Also, most of them were western countries. 

BRICS Countries 

However, China is not the only country that has offloaded U.S. treasuries in the past few years. Since 2022, the BRICS countries have done the same thing. 

BRICS Flags
Source: Pinterest

These countries include Brazil, Russia, India and South Africa. All five countries have been diversifying their reserves and reducing the dependency of their countries on the American currency. 

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The U.S. Is in Debt 

Since these countries are all part of BRICS, it is not a coincidence that they all offloaded the majority of their U.S. treasuries one after the other. However, this has had a negative impact on the U.S. as the country is now in a lot of debt. 

Revenue
Source: Pinterest

As of the end of 2023, America’s debt was a whopping $34.4 trillion. Therefore, more countries that had financial interest in the U.S. have also started to pull out for their own safety. 

High Tariffs 

The U.S. has also been implementing tougher restrictions on China, which may be because of their financial differences. There are now higher tariffs on Chinese products imported into the country, most of which are on Chinese electric vehicles. 

Chinese imports
Source: Pinterest

Other imported products like batteries, steel, aluminum and medical equipment are also facing  higher tariffs. 

Worries About a Possible Impact

Since China used to have one of the biggest holdings in U.S. agency bonds and treasuries, there are several concerns about how this will affect the U.S. economy. However, there may be no reason to panic right now because Japan and Europe now hold most of the holdings. 

Revenue
Source: Pinterest

Their holdings are much bigger than China’s, and these investments may help the U.S. continue its normal economic activity. 

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