China Reduced Exposure to U.S. Debt Amid Tariff Conflict
The U.S. Department of the Treasury revealed that China reduced its exposure to U.S. debt in March, selling close to $19 billion in Treasuries. This reduction was recorded in March as the trade conflict between the two countries escalated.
China Reduced Exposure to U.S. Debt Amid Tariff Conflict
China is willing to reduce some of its positions in U.S. debt amid the ongoing trade war. In March, the U.S. Department of the Treasury revealed that China lightened its U.S. Treasury holdings by $18.9 billion.
China’s U.S. debt holdings for that month fell to $765.4 billion from the $784.3 billion reported in February, a sharp decline that coincided with concerns about using these assets as a weapon in the context of a trade war.
With this reduction, China fell to third among the top holders of U.S. debt, sliding behind the U.K. Japan, another country potentially affected by the tariff war, is the largest holder of U.S. Treasuries.
Chinese analysts believe these moves are part of an effort to reduce the risks associated with holding assets related to a country that might default on its debt due to the escalating tariff scenario.
In this sense, Yu Yongding, a former adviser to China’s central bank, stated:
"China must have a set of countermeasures through repeated scenario planning to safeguard the security of its overseas assets."
Moody’s Concerns Over U.S. Debt
Moody’s, the ratings firm, echoed these concerns, having downgraded the U.S. debt’s perfect credit rating from ‘AAA’ to ‘Aa1.’ In a statement explaining its motivations, Moody’s highlighted that the downgrade ‘reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than those of similarly rated sovereigns.’
China’s Debt Holdings in February
In February, at the start of the trade war, China behaved differently, increasing its debt holdings by over $20 billion. This surprised some, as the moves coincided with the first set of unilateral tariffs on imports from the Asian country, which later escalated to become a de facto embargo, with tariffs rising over 100%.