Trump’s Trade War Is Backfiring — And the Dollar Might Be Next

A tariff war, collapsing bond markets, and global panic — America’s economic backbone is under siege, and the world may be forced to pay the price for MAGA ignorance.

Treasury Bonds: Why They Matter, and What Happens If China Dumps Them

United States Treasury bonds (T-bonds) are government debt securities issued by the U.S. Treasury with maturities of 20 or 30 years. Conventional wisdom has long considered them among the safest investments in the world, backed by the “full faith and credit” of the U.S. government — which means, essentially, its power to tax.

In simple terms: when a person or a country buys a T-bond, they are lending money to the U.S. government, which promises to pay back the principal with interest over time.

And here's the thing — T-bonds matter. A lot.

Why T-Bonds Matter

1. They fund U.S. government spending.
From infrastructure and healthcare to defence and social programs, T-bonds finance the deficits of the world’s largest economy.

2. They anchor the global financial system.
Governments, banks, and investors around the world treat U.S. Treasuries as a safe, stable store of value — a global reserve asset.

3. They influence global interest rates.
When T-bond yields rise, borrowing costs increase — not just in the U.S., but globally, affecting everything from mortgages and student loans to corporate debt.

4. They reflect global confidence in the U.S. dollar.
T-bonds are at the heart of what economists call "dollar stability." If investors stop trusting them, the dollar itself comes under pressure.

What Happens If T-Bonds Are Massively Sold Off?

A large-scale sell-off of U.S. Treasury bonds — by investors or foreign governments — could be deeply destabilizing. Here's what typically happens:

• Bond prices fall, interest rates rise.
  That makes borrowing more expensive for the U.S. government, businesses, and ordinary Americans.

• Financial markets may panic.
  Investors could flee riskier assets, triggering stock market volatility and capital flight.

• The U.S. dollar could weaken.
  A falling dollar might fuel domestic inflation and global currency instability

A Real-World Flashpoint: The Vietnam Tariff Shock

Let’s say you’re the CEO of Nike. You've already shifted production from China to Vietnam after years of political pressure to “de-risk.” But suddenly, the U.S. President slaps a 46 per cent tariff on Vietnamese goods.

You're not moving factories to the U.S. — that ship sailed. Instead, you look for liquidity. One option? Sell your Treasury bonds. Fast.

But here’s the kicker: everyone else is doing the same. And there simply aren't enough buyers to absorb the flood of U.S. bonds hitting the market.

This isn’t theoretical. It’s beginning to unfold now.

“This is a fire sale of Treasuries,” says Calvin Yeoh, portfolio manager at Blue Edge Advisors. “I haven’t seen moves or volatility of this size since the chaos of the pandemic in 2020.”

China's "Fight Till the End"

After the President Donald Trump, convicted for sexually assaulting the writer E. Jean Carroll, imposed a 54 per cent tariff on Chinese imports, Beijing promised to “fight till the end.” President Xi Jinping called the move “bullying” and “blackmail,” and retaliated with a 34 per cent tariff of its own. Now Trump has escalated further, imposing a further 50 per cent tariff rate, bringing the China tariff to a staggering 104 per cent.

Now, investors fear China might retaliate beyond the 34 per cent counter-tariff already announced. There is talk of a dumping U.S. Treasury bonds

“China may be selling them in retaliation for tariffs,” warns Kenichiro Kitamura of Meiji Yasuda. “This is political, not economic.”

So What If China Is Dumping T-Bonds?

• Bond prices fall further, yields rise.

• Borrowing costs spike — not just for the U.S. government, but across the economy.

• Markets spiral, and the dollar faces pressure.

• Inflation may rise, fuelling further panic.

Venture capitalist and Trump supporter Chamath Palihapitiya says,

“I’m hearing they are dumping UST to try and move rates… and make our upcoming Treasury auctions more expensive.”

In other words: Washington, D.C. just declared economic war, right as the U.S. is spending more on debt interest payment than on defence, and with a fresh Treasury auction imminent. And Beijing might be responding with its nuclear option.

How Much Does China Hold?

As of January, China officially held $761 billion in U.S. Treasuries — second only to Japan. But according to economist Robin Brooks, the real figure could be closer to $1 trillion when factoring in holdings through European custodians.

Even a partial sale could worsen the current market panic. A full-scale dump? Potentially catastrophic.

“China dumping treasuries would be like lobbing a hand grenade at someone across the room,” says Mark Williams of Capital Economics. “Trump would get hit, but Xi would be burned too.”

The global fallout as Trump’s tariff warfare unfolds is already spooking global markets, at U.S. expense.

“This is beyond fundamentals,” says Jack Chambers, strategist at ANZ. “This is about liquidity.”

Japan — the largest holder of U.S. debt — has already scrambled. Its central bank, finance ministry, and regulator called an emergency meeting to stem the selloff as Japanese bond markets tumbled.

For now, they've stemmed the worst of the extreme selling — but only just, and only for now.

The Bottom Line

If China is truly dumping Treasuries, we’re not in a trade war anymore — we’re in an economic showdown with ripple effects that could destabilise the global financial system.

The global economy faces an unparalleled crisis due to a plurality of American voters opting for an ignorant, economically illiterate, convicted criminal.

The phrase “fight till the end” now carries terrifying weight, and the fault will not be China’s should the end truly come.

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Dean M Thomson is currently a lecturer with Beijing Normal - Baptist University (BNBU), formerly known as Beijing Normal - Hong Kong Baptist University, United International College (UIC).

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