Once again China is threatening to sell those U.S. Treasury notes it holds. China holds almost a half trillion United States dollars this way. If China were to sell all the Treasury certificates held in Beijing, the United States could plunge into a recession. Many other nations of the world would quickly follow the U.S., causing a global recession.
There are a few major roadblocks that will prevent China from holding such a fire sale. First, China would not get far along in such a sale without the return on U.S. notes diving even faster. That could present a very slippery slope for China indeed. The Chinese could stand to make a great deal less money in the short run. It would be more profitable if they sold the U.S. notes slowly over many years. Unfortunately for China, the interest paid on U.S. debt is quite low. China can earn far more money in investments other than U.S. Treasury Notes.
That is just a small roadblock before the sale.
Chinese economists will quickly tell their leaders to pipe down or else. The U.S. in a recession would mean fewer trips to WalMart. Chinese factories all over that vast nation would begin closing up soon after the start of a U.S. recession. Out of work Chinese citizens could get real angry with their government.
There are so many nations that depend on a robust U.S. economy. Just look at all the products the 50 states are constantly importing from countries all over the world. Lumber, oil, electricity, natural gas, gold, diamonds, automobiles, ships, shall I continue? Some of you were just thinking about imported beer, wine, and cheese, weren't you? Admit it, you probably buy a lot of expensive and cheap foreign stuff. We all do.
1. The impact of a U.S. recession on the Chinese economy
2. The impact of a U.S. recession on the global economy
That's just two reasons why China would be shooting itself in the foot if it decided to shove the United States into a recession.
All the other countries in the world would get rather angry if someone turned over the apple cart in their biggest marketplace. Germany and Japan might not like it if China deliberately hurt their major trading partner. Even Russia and France would be offended if someone else offended the U.S. It's all about money. Those who fail to anticipate all the implications of disrupting any marketplace could be the first ones to starve for lack of a morsel to eat.
Finally, once China sells the U.S. debt it holds, exactly what would it do with that big pile of yuan? Many markets like South America and parts of Asia are pretty well saturated with investment dollars. China could invest the money in Africa but that would take time. It could invest the money in Europe but the EU has no shortage of wealth. To get the best return on investment, The Chinese government would probably need to increase the amount of U.S. and Emerging market stocks it holds.
China's money would simply go out the door of the U.S. Treasury and in the door of public or private U.S. corporations. Such a huge influx of investment dollars would drive down the cost of borrowing. U.S. executives would spend all that Chinese investment making U.S. corporations even more profitable.
You cannot expect to win a fight with a 400-kilo gorilla. You would be lucky to escape with your head still in place. The leaders of China need to think long and hard about that possibility.