This hyperbole from a Chinese government mouthpiece was trending this AM: “China may stop purchasing US agricultural products and energy, reduce Boeing orders and restrict US service trade with China. Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically.”
Dumping US Treasuries has been referred as Beijing’s “nuclear option” but the odds of that scenario playing out are basically zero. Doing so would weakened the U.S. dollar against the Yuan, a move that hurts China more than us. Nevertheless, markets are spooked because the risk of a full-scale trade war has the potential to cause a global recession, crippling both the Chinese and American economies.
The flight to safer assets is a natural response, but it’s also the main reason why markets tank. Companies like Apple and Caterpillar are impacted immediately because of their exposure to China. But on days like this, it’s really important to remind ourselves why we invest and why it’s important to have a long term outlook on things. It’s the only way to avoid getting caught up in the emotions of the moment.