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Recently, the United States once again announced tariffs on China, while US Treasury Secretary Janet Yellen also asked China not to retaliate.
As soon as this request came out, the market had not yet digested the information, and Yellen suddenly mentioned that China was reducing its holdings of U.S. debt.
What kind of economic logic and political motives are hidden behind the two seemingly unrelated news?
This makes us wonder about the delicate balance in the U.S.-China relationship.
The latest round of the tariff game between China and the United States
Let's first sort out the ins and outs of the incident.
At the end of 2023, the United States announced tariffs on a range of Chinese goods, ranging from electronics to textiles.
The move is intended to further suppress China's export advantage while encouraging a recovery in U.S. domestic manufacturing.
However, the move to impose tariffs is not new, as the United States launched a trade war in 2018, when China and the United States imposed tariffs on each other, shaking global markets.
This time, Yellen's speech was meaningful.
On the one hand, she stressed that she does not want China to retaliate, which seems to indicate that the United States is concerned about potential economic shocks in the current economic situation.
At present, the United States is facing high inflation and a weak economic recovery, and the cost of tariffs will eventually be passed on to consumers, further pushing up prices.
The profound significance of China's reduction of its holdings of U.S. bonds
Just when Yellen called on China to refrain from countermeasures, she revealed that China was reducing its holdings of U.S. bonds.
China's holdings of U.S. Treasuries fell to $1.05 trillion by the end of 2023, down about $20 billion from the previous quarter, the data showed.
This move not only aroused the attention of the market, but also became a new focus of the economic game between China and the United States.
U.S. debt has always been a key link in the financial relationship between China and the United States. As one of the world's largest holders of U.S. bonds, any action by China could have a huge impact on U.S. financial markets.
Behind China's reduction of its holdings of U.S. bonds is a reassessment of the outlook for U.S. Treasury yields and the dollar.
The Fed's interest rate hikes have pushed Treasury yields higher, but at the same time, the dollar's purchasing power has been declining, which is not good news for China, which holds a lot of US debt.
The logic behind the double initiative
Yellen's double statement of tariffs and reduction of U.S. debt seems contradictory, but in fact they complement each other.
By imposing tariffs, the United States is trying to curb the competitiveness of Chinese goods, while on the other hand, China is reducing its holdings of U.S. debt as a response to U.S. economic policy.
In this case, the economic situation of China and the United States is the key to our understanding of this game.
The data showed that the GDP growth rate of the United States in 2023 was only 2.3%, which was lower than expected, while the inflation rate remained high, with an average inflation rate of 6.5% for the year.
In contrast, China's economy faces many challenges, but its position in the global supply chain remains unassailable.
China's total exports in 2023 will reach $3.5 trillion, up 7.6% year-on-year, with exports to the United States still accounting for a high proportion.
Regional economic impact
Let's look at the specific regional economic situation.
Guangdong Province, for example, is China's largest exporting province, accounting for nearly one-third of the country's annual exports to the United States.
The tariff hike has directly affected Guangdong's exports of electronic products and textiles.
The Guangdong provincial government quickly introduced a series of supportive policies, including increasing financial support for foreign trade enterprises and promoting enterprises to explore diversified markets.
At the same time, Beijing, as the political center, is the most sensitive to the bellwether of Sino-US relations.
In response to the Sino-US trade frictions, the Beijing Municipal Government has put forward a dual-stability strategy of "stabilizing foreign investment and foreign trade", striving to maintain the smooth operation of the economy under the complex international situation.
Shanghai, as China's financial center, is extremely concerned about the movement of US bonds.
Shanghai's financial institutions have begun to reassess their global asset allocation strategies in response to China's reduction of U.S. debt holdings.
Seek to find new investment opportunities in the fluctuation of the US dollar.
In the future, the tariff war and financial game between China and the United States will continue to be staged.
The economic relationship between the two countries is not only a simple trade exchange, but also a complex financial interaction and strategic game.
High inflation and low growth in the United States, combined with China's dominance of global supply chains, make it difficult for both sides to find a complete solution in the short term.
For investors, paying attention to the trends in China-US relations, especially the changes in tariff policy and U.S. bond holdings, is an important basis for judging the direction of the market.
In today's global economic integration, policy changes on either side will have a profound impact on the global market.
This war without the smoke of gunpowder is not only a contest of strength between China and the United States, but also a game of wisdom.
The future economic pattern will gradually become clear in this game.
In any case, we hope to find a win-win path through rational dialogue and cooperation.
Strategic Adjustments in the U.S.-China Game
Historically, the trade friction between China and the United States has never really subsided.
Behind each friction is the change in the status of the two countries in the global economy and the adjustment of their strategic interests.
The tariff hike and the reduction of U.S. debt holdings are the epitome of this change.
The U.S. strategy is clear, with tariffs trying to protect domestic industries and reduce dependence on Chinese manufacturing.
Since the 2018 trade war, the United States has imposed tariffs on China's high-tech products, electronics, machinery and equipment, etc., in an attempt to weaken the competitiveness of China's manufacturing industry.
At the same time, the U.S. is also actively promoting the localization and diversification of supply chains, encouraging companies to relocate their manufacturing bases from China back to the U.S. or to other countries.
China's strategy is to "retreat as advance". By reducing its holdings of U.S. bonds, China has demonstrated its position in global financial markets.
As one of the most important financial assets in the world, changes in the holdings of U.S. bonds will directly affect the confidence of the global capital market.
China's reduction is not only a response to the US tariffs, but also a countermeasure to the Fed's interest rate hike policy.
The market's reaction and expectations
The market is very sensitive to the reaction of this series of events.
First, the U.S. dollar index fluctuated after news that China was reducing its holdings of U.S. bonds.
The U.S. dollar index reflects the strength of the U.S. dollar relative to a basket of other major currencies, and reducing U.S. Treasuries will lead to a decrease in market confidence in the U.S. dollar, which will affect the value of the U.S. dollar.
Second, global capital markets have also been affected.
In particular, the share prices of multinational companies that rely on trade between China and the United States generally fell after the news.
Apple's share price, a major company that relies on China's supply chain, fell significantly after the news of tariffs.
In addition, the raw material market has also been affected. U.S. tariffs on China could lead to higher costs for Chinese exports, which could affect global supply chains.
For example, the price of semiconductors and other critical components in electronics may rise due to the instability of the supply chain.
This is undoubtedly a challenge for the global manufacturing industry that relies on these components.
Policy and economic outlook
Against this backdrop, the global economic outlook is fraught with uncertainty.
U.S. economic policy is undergoing a realignment, shifting from the previous loose monetary policy to tightening, trying to control inflation by raising interest rates.
However, the risk of an economic slowdown caused by such policy adjustments cannot be ignored.
The International Monetary Fund (IMF) predicts that U.S. economic growth will slow significantly over the next few years, while inflationary pressures are likely to persist.
China's economic policy is more focused on domestic demand and technological innovation.
In the face of changes in the external environment, China has proposed a "dual circulation" strategy, that is, to offset the uncertainty of external demand by enhancing domestic demand, and at the same time strengthening scientific and technological innovation to enhance the autonomy and controllability of the industrial chain.
At the heart of this strategy is to reduce dependence on external markets and technologies and to strengthen the resilience of domestic markets.
The policy adjustments of China and the United States will not only affect the economies of the two countries themselves, but also have a far-reaching impact on the global economy.
Especially in the context of globalization, policy changes on either side can trigger a ripple effect.
Therefore, global investors need to pay close attention to the development of China-US relations and adjust their investment strategies according to the latest economic policies.
epilogue
The economic game between China and the United States is like a marathon with no end in sight, and every step needs to be carefully and carefully considered.
From U.S. tariffs to China's reduction of U.S. debt, there are complex economic and political considerations behind every decision.
The evolution of the U.S.-China relationship is undoubtedly one of the most important variables for the global economy.
The future economic pattern will still be profoundly affected by the Sino-US game.
How to find a balance in this game and achieve a win-win situation is a huge challenge for the leaders and economic policymakers of the two countries.
For every ordinary person, it is also very important to understand the logic of this game and do a good job in personal and family financial planning.
In the changing global economy, only by remaining rational and sober can we remain invincible in the changes.
The dual challenges of technological innovation and supply chain adjustment
In this complex game, technological innovation and supply chain adjustment have become core issues.
The U.S. and China are increasingly competing in the high-tech sector, with the U.S. trying to contain China's rise by restricting the export of high-tech products and suppressing Chinese technology companies.
China, on the other hand, has increased investment in scientific and technological research and development, promoted independent innovation in local technologies, and strived to achieve breakthroughs in key technologies.
5G vs. semiconductors
Taking 5G as an example, Huawei, as the world's leading supplier of 5G equipment, has been on the cusp of US suppression.
The United States is trying to weaken Huawei's technological advantage by restricting the export of key components.
However, Huawei has not let this stagnate and has increased its investment in the research and development of core technologies in an effort to get rid of its dependence on external supply chains.
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Text: Wind
Audit|Ancient Oasis