Trump Just Got A $756 Billion Message From China — And It's Not Friendly

Despite a Washington-Beijing trade truce at May’s Geneva summit, China just dropped its U.S. Treasury holdings to the lowest level in over 16 years ― and the timing couldn't be more telling.

In May, Beijing trimmed its stockpile of American debt to $756.3 billion, shaving off nearly $1 billion from April and marking the third straight month of reductions.

With the latest deflux, China has now slipped to third place among foreign creditors to the U.S., behind Japan and the United Kingdom. It's a far cry from the days when Beijing was America's largest lender, holding more than $1.3 trillion in Treasuries between 2012 and 2016.

China's move to slash its U.S. Treasury holdings is likely more than mere portfolio adjustment—it's a geopolitical signal. Coming on the heels of Trump's aggressive tariff regime, it could be interpreted as a calculated form of financial retaliation, subtly reminding Washington that Beijing holds levers beyond trade. By dumping American debt, China isn't just reshuffling assets—it's likely sending a message to Trump: economic pain can be delivered quietly, through markets, not megaphones.

Top 10 Foreign Holders Of US Debt As Of May 2025

From Tariffs To Treasuries: What Sparked China's Move?

Beijing's latest pullback came just weeks after President Donald Trump shocked global markets by ramping tariffs on Chinese imports up to 155% in April. Stocks wobbled, the dollar took a hit and foreign investors ran for cover—selling $40.8 billion in U.S. debt that month alone.

But May flipped the script. After Trump agreed to slash tariffs by 115 percentage points on China and enter a 90-day negotiation window, confidence returned, at least temporarily.

Foreign buying of Treasuries bounced back hard, reaching $146 billion in net purchases—the biggest monthly inflow since August 2022.

Still, China didn't follow the crowd.

Even with a shaky trade truce in place, tensions snapped back. Washington hit China with new export restrictions just days after the Geneva talks and Beijing responded by tightening exports of rare earth minerals—vital components in everything from EV batteries to missile systems.

A more subtle message may be embedded in the bond sale itself: China appears to be testing its leverage over the U.S. economy, using Treasuries—the same bonds that fund America's deficits—as a potential pressure point.

Trump's Spending Bill Raises Fiscal Alarm, All Eyes On The Fed

Beyond what foreign investors are doing, America's fiscal burden is growing fast and is causing upward pressure on bond yields.

Trump's newly signed One Big Beautiful Bill Act—passed on July 4—is set to balloon the federal deficit by $2.7 trillion over the next decade, according to the Congressional Budget Office. That kind of spending puts fresh strain on government borrowing—and investors are noticing.

The 30-year Treasury yield has climbed back toward 5%, a level that's triggered alarm bells on Wall Street in the past. It raises borrowing costs for everything from mortgages to corporate debt and puts added pressure on a stock market that’s hovering at all-time highs.

The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) is down 3% year-to-date, after falling in each of the past four years.

Trump, meanwhile, hasn't let up on the Federal Reserve. He's ramped up public pressure on Chair Jerome Powell to cut interest rates—and has even floated the idea of replacing him before his term ends next May.

The July 30 Fed meeting could bring fireworks. Most market participants and policymakers currently expect no change to rates, but dissent is brewing. Fed Governors Michelle Bowman and Christopher Waller have already signaled their readiness to vote for a rate cut, even as inflation data remain mixed.

Powell is walking a tightrope. With the bond market already flashing signs of stress, any misstep in Fed policy may risk triggering deeper summer volatility across markets.

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