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Here is why Trump will give way to China at the last minute
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Loading...As for the trade war, mathematics works in favor of Trump, and there is no doubt about it.
As China's imports to the US are about three times larger than the US exports to China, Trump has a much wider choice of goods that can charge fares. He knows this and skillfully manages to take advantage of leaving China as the more vulnerable side in the dispute.
China, however, has one trump card that could result in a $1.5 trillion Sell Off of US government securities that the Asian country holds. If China undertook aggressive dumping of US government securities, it would bring many headaches to the White House and the world as a whole.
An unexpected sellout from China will undoubtedly excite the financial markets. "If China sells US Treasury bonds as part of its response to the escalating trade war with the United States, it would be very destructive as it will raise interest rates and undermine global financial markets," said Mark Zandy of Moody's Analytics. "Investors see the move to a significant escalation of the trade war, which means it will continue much more and cause much greater economic damage."
If it happens, economists believe that interest rates will rise by about 30 basis points or three tenths of the percentage, which would be a sharp change if it is realized in a short period of time. Rates will rise because a new debt market will lower the value of bonds, forcing borrowers like the US government to pay more. Mortgage rates, car loans and most other consumer and commercial obligations will increase in tandem. Investors will flood huge flows into bonds where they suddenly get higher yields than shares.
Source: Yahoo Finance
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