10.7.19
China is the largest foreign owner of U.S. debt and biggest foreign buyer of U.S. mortgage bonds. Given this, they are in a unique position to affect the U.S. economy should the trade war escalate using “non-tariff” measures. If China stopped purchasing agency MBS, for example, demand would plummet, possibly causing home-loan rates to skyrocket. Additionally, China could take advantage of its U.S. debt ownership and dump its U.S. Treasuries, destabilizing the U.S. and, ultimately, the global economy. Despite this potential, most believe there is a slim chance of either scenario happening, as both would inadvertently damage China’s own economy.
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