In recent years, tensions between China and the United States have persisted, with trade and chip wars showing no sign of abating. Former US President Donald Trump prided himself on being a “master negotiator,” frequently invoking “the art of the deal” and often resorting to “maximum pressure” tactics to force concessions from opponents he believed held weak hands. This raises a crucial question: if the trade war between Beijing and Washington were to escalate into a financial war, who would hold the stronger trump card?
In my view, the Trump administration may have underestimated China’s ace in the hole: US Treasury bonds.
According to estimates by the Financial Times, the Chinese government currently holds about $1.5 trillion in US Treasury assets. This includes approximately $759 billion held directly, as well as around $700 billion held indirectly through custodial accounts in Belgium, Luxembourg, and other jurisdictions. If we consider only China’s official holdings, it ranks second among foreign government holders, just behind Japan. But if we include the indirect holdings via Belgium and Luxembourg, China becomes the largest foreign holder of US Treasuries, surpassing both Japan and the UK.