r/wallstreetbets • u/s1n0d3utscht3k • Mar 03 '25

News Trump Officially Signs 20% Tariffs on China

https://www.barrons.com/news/trump-signs-order-for-20-tariff-on-china-w-house-d6fec57f
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u/i_am_voldemort Mar 03 '25

China buys and holds US Treasury bonds. Selling them all at once would devalue T bonds.

Others countries with paper hands would probably sell their US treasuries, making US Treasury bond values drop more in a positive feedback loop. Selling lowers prices which leads to more selling which leads to lower prices.

Bond prices and yields are inverted, so a falling price would raise interest rates on those bonds with a second order effect of increasing overall interest rates charged to consumers. So interest rates go up.

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u/hockeyschtick Mar 04 '25

Bonds are like a Rube Goldberg machine. That’s why I stick with simple, safe things like option spreads.

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u/goomunchkin Mar 04 '25

This made me lol

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u/docbauies Mar 04 '25

Who are they selling them to? When the US owes you 8 billion dollars, the US has a you problem. When the IS owes you 8 trillion dollars, you have a US problem.

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u/mitchell_johnsons_mo Mar 04 '25

Who are they selling them to? When the US owes you 8 billion dollars, the US has a you problem. When the IS owes you 8 trillion dollars, you have a US problem.

Try again Michael Scott

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u/docbauies Mar 04 '25

Please proceed to tell me who they will sell to

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u/mitchell_johnsons_mo Mar 04 '25

I was pointing out that you fucked up the joke lol

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u/SpellingIsAhful Mar 04 '25

There's a secondary market for us bills. It's global

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u/docbauies Mar 04 '25

And who is buying 8 trillion in T bills?

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u/SpellingIsAhful Mar 04 '25

The market, at a reduced price

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u/docbauies Mar 04 '25

And that market is how big on a daily basis?

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u/myfotos Mar 04 '25

K, but and then? (Still regarded here on my side)

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u/mischling2543 Mar 04 '25

High interest rates = less money available for investment = stocks go down

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u/aManPerson Mar 04 '25

say the original government Treasury bond was 4%. (these numbers won't all fit together correctly, but i am guessing at all of their final numbers so you get an idea of how they relatively all work together).

and lets say a 10 year bond, of $10,000, would end up with $15,000 . you could buy one from the government for $10k. and on the open market, you might be able to sell it right away for something like $11k. even though it wont give you the full 15k value for another 10 years.

so all other "10 year 4% interest rate bonds are also worth that same 11k right now".

BUT, if china sold A SHIT TON, of the "10 year 4% bonds" they own, they would no longer be worth 11k right now. they would be worth maybe 10.5k. (even though 10 years from now, they would still be worth 15k).

so if any company, or thing wanted to sell a bond, right now, and generate money from it, they would have to compete with ALL of those cheaper "10 year 4% bonds" that china just sold. how do they do that? by selling something with a higher value:

10 year bond with 5% interest rate

and now interest rates have risen.

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u/Tereanoch Mar 04 '25

So, it has to do with the second hand market for T bonds and how the US will raise money.
If the tbond values go down, people will just buy Tbonds because they are guaranteed a certain sum down the line. But if it goes down below a certain point where you make more money buying a second hand bond compared to buying it off of the US treasury, the the US has to raise interest rates to stay competitive with their own bonds. T bills are how the US raises money for government spending.

For eg:- if a tbond is worth $100 and the US guarantees a 10% interest per annum for 10 years. Then you would get 200 at the end of 10 years. Interest is paid out every six months and principal is returned after 10 years

Lets say China buys this. And they want to sell it after 5 years. So china has received $50 interest for the bond already and now it's worth 150 currently ( 100 principal and 50 remaining interest) Lets say China has 10 million such bonds for example.

China wants to get rid of the bonds now and decides that they want to go scorched earth on them. They list the bonds for sale at $95. This is where the problem starts. England looks at the $95 bond and see. Hey I can make $55profit (5 profit on principal because they'll get $100 back at the end of 10 years and 50 in interest) instead of $50 profit in interest if I buy the bond from China instead of the US. So England stops buying bonds from the US and buys them directly from China. To stay competitive, the US has to raise interest rates to 11% so that they're not outpriced by the second hand market. Imagine this on a much larger scale.

This hinges on the fact that the bond holder wants to dump the bonds at an amount slightly lower than the principal.

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u/beb0p Mar 04 '25

Thank you. This was very helpful in understanding the situation.

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u/c4plasticsurgury Mar 07 '25

Whoa that’s fucking crazy man. How did you learn that.

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u/Noddite Mar 04 '25

Real answer, they wouldn't because those bonds are what help prop up the weak Yuan in China. And if they dumped them, apart from the normal loss they would cause their investment to further devalue...with little to no effect on the US.

The smart play is they just stop buying them as they mature.

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u/sopunny Mar 05 '25

China holds a bunch of IOUs from the US treasury. If they sell them for cheap, it makes it more expensive for the US to borrow money by making it harder to sell new IOUs

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u/crjsmakemecry Mar 04 '25

You’re making the 🌈🐻 so hard with those words

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u/aManPerson Mar 04 '25

ya, one thing i don't like about financial stuff. the actual concepts are not too hard. but then there are all these other terms used and it sounds like a foreign language. take a look at my other comment here.

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u/TheDakestTimeline Mar 04 '25

Basically faith in the full credit of the US govt goes down

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u/mmoonbelly Mar 04 '25

But they don’t want to devalue the dollar. If anything they need it to inflate in value. That way the cost to produce in China in Yuan stays the same, the sales price in the US stays the same in US$ they inflate the tariff away.

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u/eddie7000 Mar 04 '25

America would retaliate by confiscating all Chinese owned land in the USA. Or something like that.

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u/i_am_voldemort Mar 04 '25

The Chinese owned land is under various American companies including Smithfield Foods, Brazo Highland Properties LP, Walton International Group, and Harvest Texas LLC.

Since these are ostensibly American companies the government would run headlong in to 5th Amendment Takings Clause issue trying to seize it. With the current textualist Supreme Court I don't know if the administration would win on it.

They'd have better luck taking it under eminent domain, but then you'd be paying China money...

Additionally, Smithfield in particular is a huge farming/produce/meat conglomerate with lots of brands in major supermarkets. Start fucking with its operations and there would be ripple effects into the supermarket aisle.

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u/eddie7000 Mar 06 '25

If war breaks out that land is gone. The government would do a deal with the American partners and both would make money.

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u/Basket_cased Mar 04 '25

I thought China tried that during the 2008 financial crisis and the fed just turned on the money printers and laughed in Xi’s face

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u/Optimal-Golf-8270 Mar 04 '25

China bought debt in 2008 didn't they? They sold around 2016. They're selling USD to buy gold, about 100 tons a year for the last 20 years.

This idea that China and the US are in a second cold war is entirely one sided. They're just doing their own thing while we destroy ourselves fighting the ghost of Stalin.

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u/huhwaaaat Mar 04 '25

China would never sell off the treasury bond (at least in its current state still being the world's no.2) because it would cripple the US economy and it will force the US to take drastic actions against China. China is trading with a $300 billion trade surplus, crippling the US economy doesn't benefit itself. However, they are no longer buying as much treasury bonds as before, instead just keeping the US dollar in their own treasury. They are trying to remove their reliance on the US dollar hegemony. This rejection of USD hegemony is also why the trade war started to begin with, and why Biden didn't remove the tariffs from Trump's reign when he took power over him. Losing the USD hegemony and the power it has to tax the world would mean losing everything for the US.

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u/Optimal-Golf-8270 Mar 04 '25

They wouldn't sell them all off in one go ala the US with British bonds during Suez. They are selling them off, that's kinda indisputable fact. They've sold 400 billion over the last 8 years. Sold 400, bought 100.

What's always interesting about this kinda thing is that in attempting to maintain pax Americana, they've put themselves in a much worse position going forward. Could have just been comfortably the senior power in a multi-polar world. Instead they're crippling themselves, and forcing China to become self reliant.

Like what did they think was gonna happen when they sanctioned China's access to chips? They'd fold? Obviously they're gonna pour cash into development. And now it's, oh shit, actually we can't build chips either. Well done, you've put them in a stronger position whilst costing yourself hundreds of billions to subsidise a foreign company who aren't gonna share IPs with you. Genius move.

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u/huhwaaaat Mar 04 '25

They probably thought that China would fold like Japan did in the 80s, first the VER to limit Japan's automotive industry, then the Plaza Accords, then the semiconductor export ban. Ofc in the 80s US was basically the sole power, and Japan's economy would suffer greatly if it did not do what was told. Even China didn't dare to oppose the US back then when it bombed its embassy, only sputtering off a few words in a press conference. But what is funny is that they seem to have no long term vision in every single one of its foreign policy; tariffs and export/import bans is good for short term protection of your industry, but then they don't do anything to revitalise their industry to try to compete with China, leaving it to stagnate. So you don't want to go back to being an industrial powerhouse, but you also don't want anyone being an industrial powerhouse. So focus on being an innovative economy instead, but even then they are still starting to lose the lead on China.

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u/Optimal-Golf-8270 Mar 04 '25

Very true. Always thought the prophecies of collapse over their housing bubble were pretty funny. They've successfully done what Japan tried to do. Shock horror, it was the right thing to do, bailing out real estate cripples your country for almost literally no upside. Who'd have thunk it. It's supposed to be capitalism, if they bite off more than they can chew, too fuckin bad. Spend the rest of your life paying back your debtors, zero governmental help.

I don't think they can reindustrialise without shock therapy, and no one wants that. That's the thing about all of this, Trump announces tarrifs, sure whatever, stupid, but could be part of a larger plan. And there's nothing. More subsidies to farms, but that's it. Xi is about to announce a massive stimulus package in response to the tarrifs. Probably been working on the long-term planning since November. When the tarrifs come they're ready to go next day. That kinda planning just doesn't exist anywhere in the West anymore.

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u/huhwaaaat Mar 04 '25

There is no incentive to plan for the future. Why would you want to do that, so the next candidate can take all of the credit? This is why you don't see massive infrastructure projects in the US, 5 years down the road the guy opposite your camp is going to reap all the benefits from your idea, and the media will portray it as such. Why risk it for so little? Might as well just stamp out some tariffs, line your pockets with some cash, and dip in 4 years. This is not to say democracy is bad, it's just US democracy is so split between left and right that the people would rather focus on what's shown on the news than what's done behind the scenes. Perhaps the limit of democracy is that it requires an educated and logically capable population to begin with.

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u/i_am_voldemort Mar 04 '25

Yes but then the fed devalues the US dollar and increases inflation.

Tbh China doesn't have to do anything, just threaten to do it, like they did last time.

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u/A_Light_Spark Mar 04 '25 edited Mar 04 '25

Great explanation, although I'd suggest that "positive feedback loop" usually refers to something that goes up. I know you mean the selling force is a positive feedback, but generally we are talking about the price which is a negative feedback loop.

Edit: I'm a regard

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u/PrizeStrawberryOil Mar 04 '25

You're wrong on your application of the terms.

Negative feedback causes the system to become more stable. Positive feedback causes the system to become unstable.

Negative and positive don't have anything to do with whether something goes up or down.