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China is under pressure to teach Trump a lesson - it should be very careful

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17.05.2019

China cannot plausibly retaliate against Donald Trump by the dumping of US Treasuries on a grand scale. Any attempt to do so would backfire via multiple channels.

China President Xi Jinping is feeling internal pressure to strike back harder against Donald Trump.Credit:AP

To the extent that this action weakened the overvalued US dollar it would be doing the White House a favour. The Fed could respond with a blast of quantitative easing. This would blanket the Treasury market and prevent yields rising.

Each spasm of Sino-US hostilities leads to a chorus of calls from Chinese nationalists for the State Administration of Foreign Exchange (Safe) to pull the plug on its $US1.12 trillion ($1.6 trillion trillion) holding of US debt. Such a move would supposedly deliver a financial shock and teach Donald Trump a lesson. Global Times editor Hu Xijin has been leading the charge this time. "Many Chinese scholars are discussing the possibility of dumping US Treasuries........

© Brisbane Times