America’s trading partners have a massive bazooka in the trade war. They may never use it

One of America’s closest allies recently raised eyebrows for threatening to fire the ultimate financial weapon against Washington in trade talks: Dumping US debt.

One of America’s closest allies recently raised eyebrows for threatening to fire off the ultimate financial weapon against Washington in trade talks: dumping US debt. Japanese Finance Minister Katsunobu Kato, whose country is the biggest holder of US Treasuries, said on Friday that selling the assets is a “card on the table” in tariff negotiations, according to The Associated Press. “It does exist as a card, but I think whether we choose to use it or not would be a separate decision,” Kato said. Two days later, the Japanese official walked back the comment, stressing on Sunday that the longtime US ally is “not considering the sale of US Treasuries as a means of Japan-US negotiations.” Japan was unlikely to fire this big bazooka in the trade war anyway, since selling US Treasuries is considered an extreme move — one that would likely backfire, experts say. Still, the short-lived threat raises an ugly truth: The United States relies on other countries buying its $36 trillion mountain of debt. It’s another way that President Donald Trump’s aggressive trade war could hurt the American economy: Tariffs have the potential to reduce the amount of capital seeking a home in American assets, which could lift interest rates and hurt the value of the US dollar. Even if a large-scale Treasury selloff is unlikely, other nations — including one of America’s closest allies — are clearly considering all options.