China's Potential Use of US Treasury Holdings as a Trade War Weapon

Amid escalating trade tensions with the U.S., China is considering using its substantial holdings of U.S. Treasury securities as leverage. This move could potentially destabilize the U.S. bond market and increase borrowing costs for the U.S. government.

Treasury Secretary Scott Bessent has downplayed concerns, but analysts suggest that a stable bond market is crucial for the U.S. to manage its debt. China's holdings, which stood at approximately $760 billion as of April 2025, make it a significant player in the U.S. debt market.

Selling off these holdings could pressure the U.S., especially given the declining dominance of the U.S. dollar in global trade. Some analysts believe the People's Bank of China has been increasing its gold reserves as a hedge against potential financial instability. However, aggressive sales could also negatively impact China by devaluing its remaining holdings.

The possibility of China using its Treasury holdings as a weapon has led global investors to explore alternatives. The situation is further complicated by President Trump's imposition of tariffs on Chinese goods, which prompted retaliatory tariffs from China, escalating the trade war. Some experts suggest that China may also consider devaluing its currency to make its exports more competitive.