In a new and interesting development, China is getting rid of a record amount of US Treasury and agency bonds. The nation’s decision to move away from US bonds stems from the ongoing trade tensions that are pivotal in straining the US-China trade relationship.
Also Read: BRICS: China’s Gold Buying Spree to End the US Dollar?
China-US Trade Tensions: Details
The trade tensions between China and the US seem to have adopted a stricter stance. China has recently conducted $260 billion worth of trade with Russia without using the USD. This indicates a potentially strained outlook for China towards the US, which is playing an elemental role in helping China offload the USD.
The data from the US Treasury reveals that China has sold nearly $53.3 billion of treasuries and agency bonds in Q1, indicating the nation’s dubious stance towards the US dollar. Belgium, often dubbed a custodian of Chinese holdings, has also shed nearly $22 billion worth of bonds, indicative of China’s edgy outlook towards the USD.
The tensions between the two nations have escalated primarily due to Biden’s decision to levy tariff hikes on Chinese imports. At the same time, US presidential candidate Donald Trump has also mentioned his decision to impose more than a 60% tax on Chinese goods if elected, adding more fuel to the narrative.
“The tariffs announced today on US imports from China won’t cause much direct economic damage since trade in the affected goods is already low. But US economic sanctions on China seem to act like a ratchet: they only ever get tighter,” wrote Mark Williams, chief Asia economist with Capital Economics.”
China’s Compulsive Stance Towards Gold
As China continues to offload USD bonds to move away from the USD, the nation is also amping up efforts to hoard gold. The nation’s gold reserves have risen by a staggering 4.9%, indicating the nation’s attempt to diversify its portfolio.
Also Read: Gold’s Allure Compels Chinese Investors To “Hodl” The Yellow Metal
At the same time, China is pioneering the end of the US dollar agenda by moving away from the USD on all fronts. The nation is part of the BRICS alliance, a five-nation pack spearheading a new economic narrative. The alliance is also working towards developing its currency in a bid to establish its dominance and derail the USD as a peak reserve currency.
“As China is selling both even though we are closer to a Fed rate-cut cycle, there should be a clear intention of diversifying away from US dollar holdings,” said Stephen Chiu, chief Asia foreign exchange and rates strategist at Bloomberg Intelligence. “China’s selling of US securities could speed up as the US-China trade war resumes.”