We've spoken about the US v China trade war already this weekend, but I wanted to speak about an aspect of it that in my opinion, is the biggest elephant in the room: China's purchasing of US Treasuries.
After Donald Trump announced his plans to impose trade tariffs against Chinese goods, China's reaction has certainly been equities market negative, but certainly not yet as big as it could get. We have to recognise where in the grand scheme of global economics, the money that China makes from US trade flows.
Yep, you guessed it. US Treasuries.
The trade surplus that they gain flows straight back into the US via the purchasing of their very own treasury debt. Debt that the US relies on being purchased to fund their endless deficits.
Don't make the mistake that the US doesn't need China, because they most definitely do. The US is very dependent on the country they are now in the midst of a trade war with, to essentially fund their cheap government loans.
It's worth taking note of the fact that the Chinese own around $1.2 TRILLION USD in Treasury debt via their purchasing of US Treasuries. If this demand suddenly was no longer there as a retaliation for Trump's reckless policies, then the repercussions for not only the US economy, but the global economy could be catastrophic.
Hey Donald. While you're pleasing your middle American voting base who have no idea about the inter connectivity of the global economy, you might want to think again. What happens if the Chinese snub US debt?
Hmm.
Best of probabilities to you.
Peace ✌🏻.
Please leave a comment with your ideas or just share a chart.
Blogging about markets is all about sharing ideas and making us see all possible angles. I look forward to having you follow along and reading what you throw at me.
Twitter: @forexbrokr
Instagram: @forexbrokr
Website: www.forexbrokr.com