So things have gotten pretty nasty in Trump's attempt to get China to behave like a responsible trading nation. China appeared to be negotiating in good faith, and at the last hurdle they walk back everything they have agreed before.
The US slaps on tariffs and China responds with tariffs on some $60 billion of goods. All totally predictable in the game theory both sides have used.
But somewhere in the state run media China threatens to use it's biggest weapon.....nope not the bomb, that's impolite.....Treasuries. The Chinese hold some $1.2 trillion of US treasuries. That's roughly a quarter of all foreign held treasuries. Dumping them would hurt according to the Chinese logic.
This veiled threat is presumably meant to scare the pants off the US negotiating team. But there is also the $18 trillion of treasuries held by US citizens or institutions....a rather large number. Expand that number by 7% and you have absorbed the whole Chinese threat.
But you wouldn't have to. .....the US deficit will continue creating dollar holdings which other countries would hold. And if interest rates pop up a bit, there would be plenty of foreign institutions piling into Treauries just as a pure investment.
So this flamingly irresponsible threat from the world's second biggest economy....wont destroy the US financial system. But it would temporarily hurt the markets, and perhaps Trump.
Still the big loser here is China. They have proven themselves to be thoroughly dishonorable, dishonest and destructive. There will be few discussions in Board rooms about building in China, until they have walked all this back and proven they really mean it.
All of that will take time, a lot of time....China has been checked for the first time in recent memory and the Chinese are reacting in childish, self destructive ways. The world now has a better sense of China as world leader, and it's not a pretty picture.