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Despite Tariffs, China Will Not Reduce US Treasury Bond Holdings

Chinese Vice Finance Minister Zhu Guangyo said Tuesday night that China will not sell U.S. Treasury bonds despite trade tariffs, CNBC reports. (RELATED: China Opens Fire On Roughly $50 Billion In US Exports As Trade Spat Heats Up)

China is responsible for holding more U.S. debt (about $1.17 trillion) than any other country.

After China announced trade tariffs on more than 100 U.S. exports Wednesday, there was speculation that the country would reduce U.S. Treasury bond holdings, which would lead to a potential trade war and dramatically increase U.S. inflation rates, according to CNBC.

China’s U.S. Treasury holdings help to reduce our large federal government deficit. Owning $1.17 billion in U.S. bonds, however, significantly benefits China’s economy because the country collects more money from sending exported goods to America than they spend on American imports.

“If China suddenly stopped buying bonds, the interest rates that the government pays on those bonds would soar in order to attract more investors,” CNN Money explains. “China’s bond purchases also help keep interest rates lower for American consumers and businesses, since many forms of borrowing, such as mortgage rates, typically move in line with bond rates.”

But despite concern, Vice Finance Minister Guangyo assured reporters that is not going to be the case, and that China does not plan on reducing U.S. Treasury bond purchases anytime soon. “Both in domestic and international law, China is a responsible investor,” he explained.

“We don’t want to have a trade war with anyone,” Ambassador Cui Tiankai told reporters. “We believe any unilateral and protectionist moves would hurt everybody, including the United States itself,” said Cui. “It would certainly hurt the daily life of American middle-class people, and the American companies and the financial markets.”