China’s Threat to Dump U.S. Treasuries: A Hollow Bluff Disguised as Retaliation
- lhpgop
- Apr 23
- 4 min read
“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.”
―Sun tzu,The Art of War
Amid renewed U.S.–China trade tensions and tariff escalations, Chinese state proxies and Western sympathizers have floated a familiar threat: that Beijing could "retaliate" by dumping its holdings of U.S. Treasury securities, thus destabilizing the American economy. While this proposition makes for a compelling geopolitical talking point, it is economically hollow. Upon closer inspection, China's ability to weaponize its Treasury holdings is significantly limited by practical constraints, market realities, and the sheer size of the global demand for U.S. debt.
This essay dissects the mechanics of such a threat, explains how large-scale Treasury sales function, and identifies who would step in to buy the securities if China tried to unload them. The conclusion is clear: the threat is more bluff than bomb—a piece of disinformation designed to appear menacing to the uninformed public.
How Treasury Sales Work in Reality
China cannot simply dump Treasuries onto a global market like a fire sale at a department store. The sale of U.S. government debt occurs primarily on the secondary market, through brokers, institutional channels, and staggered trading blocks. There is no mechanism for Beijing to return securities directly to the U.S. Treasury for cash, nor can it bypass market pricing. Large-scale sales would require:
Staggered release through intermediaries to avoid detection and pricing damage
Willing institutional buyers capable of absorbing billions in debt
Acceptance of steep losses, as bulk selling depresses bond prices
Thus, the mere logistics of dumping Treasuries limit China’s ability to use this strategy effectively or quickly.
What Happens if China Tries?
1. Interest Rates Would Rise—Temporarily
Mass selling would raise yields on Treasuries, increasing U.S. government borrowing costs in the short term. However, such a move would also:
Make Treasuries more attractive to other investors
Prompt the Federal Reserve to intervene and stabilize markets
Encourage private and foreign institutional buying at favorable prices
2. China's Own Losses Would Be Severe
The People's Bank of China would suffer significant losses in reserve value, and the yuan would likely face speculative pressure. Furthermore, China would still need to park its foreign exchange reserves somewhere, and there are no markets as deep and stable as the U.S. Treasury market.
3. Panic Would Invite Opportunity
A panic-sale situation would not lead to U.S. collapse. It would instead invite other governments and institutions to buy at a discount.
The graph below visualizes the capacity and likelihood of major global buyers stepping in to purchase U.S. Treasuries if China were to sell:
High Capacity & High Likelihood Buyers
Japan: Largest foreign holder of U.S. debt, motivated by stable returns and domestic demographics.
U.S. Institutions: Domestic banks, pension funds, and insurers would move in immediately.
Federal Reserve: The ultimate buyer of last resort with unlimited balance sheet capacity.
Other Strategic Buyers
UK: A global financial hub that manages assets for many non-U.S. actors.
Gulf States: Oil wealth sovereign funds hungry for secure, USD-denominated assets.
Germany, Switzerland, and Norway: Conservative reserve managers that view Treasuries as a global safe haven.
These entities have the motivation and means to absorb large blocks of Treasuries. For them, China’s panic sale would be a windfall, not a catastrophe.
"I hold that it is bad as far as we are concerned if a person, a political party, an army or a school is not attacked by the enemy, for in that case it would definitely mean that we have sunk to the level of the enemy. It is good if we are attacked by the enemy, since it proves that we have drawn a clear line of demarcation between the enemy and ourselves. It is still better if the enemy attacks us wildly and paints us as utterly black and without a single virtue; it demonstrates that we have not only drawn a clear line of demarcation between the enemy and ourselves but achieved a great deal in our work." Mao, 5/26/1939
Maybe someone should have had President Xi go back over this quote?
China’s Treasury holdings are often touted as a strategic weapon, but this theory falls apart when you consider:
Mutual economic interdependence: China exports to the U.S. in dollars and needs a safe place to store them.
Lack of alternatives: There is no other bond market large, liquid, and safe enough to replace U.S. Treasuries.
Blowback risk: A financial move of this magnitude could spur global condemnation and capital flight from China.
Moreover, the timing and tone of these threats usually coincide with trade disputes or internal political struggles—suggesting they are meant more for psychological impact and media influence than actual implementation.
The Chinese threat to sell off U.S. Treasuries is more bark than bite. The mechanics of the global financial system make it nearly impossible to execute without hurting China more than the U.S. And as shown, the U.S. has a deep bench of buyers ready to stabilize the market.
At best, this narrative is a public relations strategy aimed at influencing perception. At worst, it is an attempt at financial disinformation, amplified by useful idiots in Western media. Policymakers and investors should treat it as such—and prepare not for panic, but for opportunity.
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