It is often called the nuclear option.
In the trade war between the United States and China, economists and investors have long tried to game out how both sides might use their clout. In virtually all the predictions, at least until recently, they revolved around a tit-for-tat tariff war.
Even in the gloomiest of doomsday scenarios, there is one weapon that has long been considered unthinkable: the Chinese, the biggest holder of United States foreign debt with more than $1 trillion, publicly taking a step back from buying United States Treasuries — or worse, dumping what they own in the open market.
The very idea is typically dismissed as a waste of time to even consider, and the reason is a sort of mutually assured destruction. It would be wildly irrational in economic terms, the thinking goes. China selling Treasuries would send interest rates up and hurt the United States, but it would simultaneously severely damage the value of China’s own Treasury holdings. As the industrialist J. Paul Getty famously said, “If you owe the bank $100, that’s your problem; if you owe the bank $100 million, that’s the bank’s problem.” In the United States-China relationship, China is very clearly the bank.
人们通常觉得这个念头想一想都是浪费时间,理由是某种相互毁灭保证。人们觉得,这在经济方面是非常不合理的。中国抛售美国国债会导致利率上升,并损害美国,但它同时会严重损害中国自己的国债持有。正如工业家J·保罗·盖蒂(J. Paul Getty)所说,“如果你欠银行100美元,那是你的问题;如果你欠银行1亿美元,那就是银行的麻烦了。”在美中关系中,中国显然相当于银行。
But the conventional wisdom about what China might — or might not — be prepared to do could be wrong. China has lately reduced its holdings of United States government debt, and a growing number of financiers, economists and geopolitical analysts are quietly raising the prospect that China may look to its ability to influence interest rates as its ultimate Trump card.
After all, China doesn’t have any American imports left to tariff and it is already taking aim at deals, so what’s left?
If China were to undertake such a maneuver, it would do so at a delicate time for the United States economy: The rising deficit has increased the Treasury’s borrowing needs. There is more debt to be purchased, and the Federal Reserve is raising interest rates, making that debt more expensive. It’s not clear how much China could drive up rates by shedding Treasuries, but it would certainly add to the momentum already present.
And it is worth remembering that Beijing’s endgame is not necessarily to ensure the financial health of its country this year or the next. If China were to suffer short-term pain to gain a real and lasting advantage over the United States — or at least not lose any advantages it does have — it might be willing to struggle a bit today.
“The negotiation between the two great powers isn’t about how many soybeans or Boeing airplanes they buy by the end of the year,” said Kevin Warsh, a former governor of the Federal Reserve. “We are at a pivotal moment in history. The actions of the U.S. and Chinese governments in the next 12 months will set the course for the relationship of the two great powers of the 21st century.”
“这两个大国之间的谈判不是关于他们在今年年底前购买多少大豆或波音飞机,”美联储的一位前主管凯文·沃什(Kevin Warsh)说。“我们正处于历史的关键时刻。美国和中国政府在未来12个月的行动,将为21世纪两个大国的关系奠定基础。”
And the war of words is only getting sharper. Last week, Vice President Mike Pence accused China of using “political, economic and military tools, as well as propaganda, to advance its influence and benefit its interests in the United States.” And on Monday, China’s foreign minister, Wang Yi, admonished the Trump administration for “ceaselessly elevating” trade tensions and “casting a shadow” over relations between the two countries as he sat directly across from Secretary of State Mike Pompeo.
而言语之战只会越来越尖锐。上周,副总统迈克·彭斯(Mike Pence)指责中国利用“政治、经济和军事手段以及宣传手段提升其影响力,促进其在美国的利益。”周一在与国务卿迈克·庞皮欧(Mike Pompeo)直接会谈时,中国外交部长王毅指责特朗普政府“不断升级”贸易紧张局势,给两国关系“蒙上了阴影”。
Still, critics who dismiss the possibility of China trying to upend the United States Treasury market say that China’s own economy is too fragile to risk doing anything that would cause instability.
Stability has long been a watchword in China. Over the weekend, China’s central bank, clearly nervous about a slowdown, pumped $175 billion into the economy by lowering the amount of money that some lenders are required to hold in reserve, allowing that money to circulate freely instead.
Supporters of the Trump administration’s tough stance on tariffs with China take actions like that as a sign that the United States holds the negotiating leverage. And it remains an open question whether China could inflict real damage by selling Treasuries.
“Treasuries sales in a sense are easy to counter, as the Fed is very comfortable buying and selling Treasuries for its own account,” wrote Brad W. Setser, a senior fellow for international economics at the Council on Foreign Relations. “I have often said that the U.S. ultimately holds the high cards here: The Fed is the one actor in the world that can buy more than China can ever sell.”
“从某种意义上来说,抛售国债很容易应对,因为美联储完全可以自行购买和出售国债,”美国外交关系委员会(Council on Foreign Relations)国际经济高级研究员布拉德·W·塞策(Brad W. Setser)写道。“我常常说,大牌终归是在美国手上:美联储是世界上唯一一个有能力买入比中国卖出量更多国债的一方。”
Even so, the market dynamics are unpredictable. Chances are, over the past two decades, there have been Treasury auctions at which the Chinese haven’t been bidders. But whether they were active bidders or not, the other bidders have always had to assume they were.
It is one thing to show up at Sotheby’s and not raise your paddle. It would be quite another to send out a news release saying you’re never going to Sotheby’s again.
The problem is that China would have to find something to do with that money — and, in this case, the auction house is always offering the best deals in town.
“Even if it could sell its more than a trillion dollars of Treasurys without pushing the market against it, where would it park the funds?” Marc Chandler, global head of currency strategy for Brown Brothers Harriman, wrote in a note to investors. “It will not be able to secure the liquidity, safety and returns that are available in the U.S.”
“即便是中国能抛售出手中超过一万亿美元的美国国债,而又做到不让市场对自己不利,它要把这些钱投在哪里?”布朗兄弟哈里曼(Brown Brothers Harriman)全球货币战略负责人马克·钱德勒(Marc Chandler)在写给投资者的一封信中表示。“中国将会无法保证这笔资金在美国能获得的流动性、安全性和回报。”
But brinkmanship does not breed rational thought. The escalation of hostilities, even economic ones, raises both stakes and tempers alike, which is a dangerous combination.
And in this case, there is no proving ground. There is no predictable math, no scale model.
If China were to use its nuclear option and the markets didn’t react, it would lose influence in stark fashion. If it worked — but was more effective than expected — China could inflict unintended damage on its own economy.
And even a perfectly executed strike that left China unharmed would be perilous: A targeted attack on the United States economy would have unknowable repercussions. If the fallout cloud settled over Europe or emerging markets, would China be ready for that fight, too?
Since the end of the Cold War and the proliferation of nuclear weapons, the world has embraced a policy of strategic stability: reducing the incentive for rival nations to unleash unimaginable destruction.
That is probably good economic policy, too.