Dumping U.S. debt, a possible weapon in global trade war

U.S. President Donald Trump’s is to slap stiff tariffs on imported steel (25%) and aluminum (10%) has rattled financial markets and stirred fears that some trading partners might retaliate by dumping U.S. Treasuries.

Should China, Japan and other nations, which have recycled their trade dollars through their Treasuries holdings, suddenly decide to whittle them down, markets could be in for a rough ride.

Such a retaliatory move, in the wake of Trump’s first big protectionist action, comes at a time when foreign demand for U.S. debt is seen critical to offset an expected surge in federal borrowing needs, analysts and investors said on Friday.

“The threats are real,” said Kristina Hooper, chief global market strategist at Invesco in New York.“We need more foreign demand, not less.”