Debt Diplomacy and Currency Shockwaves
While the war of words continues, financial analysts are eyeing potential economic time bombs. China, which holds just under 9% of U.S. Treasury securities, may begin dumping American debt—a move that could rattle U.S. interest rates and the broader economy.
“Trump can’t fight back on that front,” said Prem Sikka, professor emeritus at the University of Essex. “Selling U.S. bonds would drive up interest rates—a dangerous card for China to play.”
Robin Brooks, a senior fellow at the Brookings Institute, predicted the Chinese yuan could face pressure to depreciate as investors brace for capital flight. “To stop the yuan from freefalling, China may start unloading U.S. Treasuries, which is likely fueling rising yields,” Brooks warned.
Indeed, yields on 10-year Treasury notes jumped 40 basis points this week, signaling market unease.
White House Pushes Forward Despite Risks
Despite mounting global concern, the White House appears committed to its hardline stance. Secretary Bessent attempted to soothe fears during a Thursday Cabinet meeting, pointing to stable inflation data and successful bond auctions.
“We had a good day—nothing unusual to report,” he said.
Trump, meanwhile, struck a somewhat conciliatory note regarding future negotiations.
“I’m sure we’ll get along just fine,” he said. “We’ll work something out that’s good for both countries.”
But critics argue the administration is charging ahead without a long-term strategy. Oren Cass, chief economist at American Compass, called the 145% rate “unwise” and cautioned that China may end up alienating potential allies if it dumps surplus exports onto their markets.
“The U.S. needs to clearly define what it wants from its future relationship with China,” Cass wrote.
