China is the largest holder of US Treasuries. It held $1.16 trillion of U.S. government debt as of September. For more than a decade, politicians have expressed concern that China and other foreign government could use their significant stakes in Treasuries against the U.S. by dumping them on the market. Such a move would potentially drive borrowing costs in the U.S. higher, they argued.

True. But this would also hurt China’s exports – the sacred cow of its communist government. Because should China try to dump the Treasuries, it would weaken the dollar and bolster its currency, known variously as the yuan and the renminbi. Which means the price of Chinese goods would rise, thus diminishing their global market appeal.

So selling off treasuries would be China cutting off its nose to spite itself. Or shooting itself in the foot to hurt the U.S. Chinese leaders are ruthless communists but they are not stupid. And Trump knows it. So he is using their massive treasuries holdings as a weapon with which to wag their tail.

So do you still think America’s president-elect is inexperienced in foreign affairs?

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