US-China Relations Strained Over COVID-19 and Trade Agreement Issues... Trump Says "Decision Within 1-2 Weeks" (Comprehensive)

-Possibility of US Treasury as a 'Retaliation Card' Between Two Countries

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[Asia Economy Beijing=Special Correspondent Sunmi Park] Relations between the United States and China are becoming strained over the origin of the novel coronavirus disease (COVID-19) and the implementation of trade agreements. As tensions between the U.S. and China escalate, there is growing speculation that U.S. Treasury bonds could emerge as a 'retaliation card' between the two countries.

On the 7th, Hong Kong's South China Morning Post (SCMP) reported, citing expert analysis, that due to the rekindled U.S.-China trade tensions and disputes over the origin of COVID-19, China may significantly reduce its holdings of U.S. Treasury bonds within the next few months.

Some U.S. media outlets have already reported that White House officials discussed invalidating China's repayment obligations on U.S. Treasury bonds it holds as a way to hold China accountable for the outbreak of COVID-19 and offset the associated costs. Although Larry Kudlow, Chairman of the White House National Economic Council (NEC) and economic advisor to President Donald Trump, dismissed the possibility of China refusing to repay U.S. Treasury bonds, the mere fact that U.S. officials have engaged in such discussions provides China with justification to reduce its U.S. Treasury holdings.

SCMP noted that experts generally view the 'possibility of China refusing to repay U.S. Treasury bonds' as an unlikely scenario in practice. However, many believe China may take preemptive measures to reduce its U.S. Treasury holdings to mitigate risks. Furthermore, if China uses this as a pretext to sell off a large volume of U.S. Treasury bonds, the U.S. might face difficulties as it would need to increase new bond issuance to fund economic measures responding to COVID-19. This could lead to a sharp drop in U.S. bond prices and a rise in interest rates, potentially triggering a collapse of the dollar and financial markets.

However, experts also suggest that if China were to sell off its U.S. Treasury bonds in large quantities all at once, it would incur losses as well. Therefore, China might initially reduce its overall holdings by not extending maturing bonds and halting additional purchases.

Iris Fang, Senior Economist for China at ING Bank, said, "China wants to reduce its U.S. Treasury holdings quickly," adding, "There have been considerable calls within China over the past decade to reduce U.S. Treasury holdings." She explained, "Within the next few months, China may stop purchasing U.S. bonds to send a clear signal to the U.S. If such a decision is made, selling U.S. Treasury bonds could become a reality later."

China's reduction of U.S. Treasury holdings was often mentioned as a 'retaliation card' during the intensified trade war with the U.S. until last year. Currently, China is the second-largest holder of U.S. Treasury bonds after Japan, with holdings amounting to $1.92 trillion as of the end of February. China has been gradually reducing its U.S. Treasury holdings recently, and after losing the top spot to Japan in June last year, it has remained in second place.

Relations between the U.S. and China have recently deteriorated to their worst level in over 40 years amid disputes over the origin of COVID-19 and concerns about China's failure to fulfill the Phase One trade agreement.

President Donald Trump expects to determine within the next one to two weeks whether China is fulfilling the Phase One trade agreement. According to major foreign media, President Trump said on the day, "We are closely monitoring whether China is implementing the trade agreement to purchase U.S. products and services," adding, "We will be able to report within one to two weeks on China's compliance not only in the agricultural sector but also in other industries. I hope China is fulfilling the agreement."

In January, China reached a Phase One trade agreement with the U.S., promising to purchase a total of $200 billion worth of U.S. goods and services over the next two years, including $32 billion in agricultural products. China claims it is purchasing U.S. agricultural products and fulfilling the trade agreement, but President Trump has expressed skepticism about whether the purchase levels meet the commitments made in the Phase One agreement.

President Trump also announced the release of an investigative report on the origin of COVID-19 the day before, pressuring China by saying, "I hope they are transparent. We want to find out what happened."

This content was produced with the assistance of AI translation services.