China’s nasty threat to retaliate against the US in the trade war would backfire catastrophically

Now that the trade war between the US and China is on, observers on both sides are wondering what more China will do to retaliate against the US.

One measure China could take that keeps popping up in conversation is that the country could start dumping its massive hoard of $1.1 trillion worth of US Treasurys en masse, depressing their value.

It sounds terrible. Luckily, it’s highly unlikely to happen because a Treasurys dump would hurt the US, China, and the world, in that order. Selling US Treasurys would depress the value of the dollar, making Chinese exports more expensive. Plus, it would limit China’s ability to manage its own currency, the yuan, if this trade war got really out of control.