China Cuts US Treasury Holdings by $18.9 Billion, UK Takes Second Spot

China significantly reduced its holdings of US Treasuries by $18.9 billion between February and March, as indicated by recent government data. This reduction is notable as most other countries increased their holdings during the same period. The UK has now surpassed China to become the second-largest foreign holder of US Treasuries, while Japan remains the largest holder with $1.13 trillion, a decrease from $1.16 trillion a year prior.

Macro investor Luke Gromen has raised concerns about the implications of this shift. He warns that countries increasing their purchases of US Treasuries may not be able to simultaneously buy more American-manufactured goods, which could exacerbate America’s trade deficit. Gromen highlighted that foreign holdings of US Treasuries rose by $133 billion in March compared to February, with the UK, Cayman Islands, and Canada contributing $86 billion of that increase. Meanwhile, China sold $19 billion worth of Treasuries. The Cayman Islands, with a population of approximately 73,000, is now the fourth-largest foreign creditor to the US, holding $455 billion in US Treasuries.

Gromen’s analysis suggests a complex economic dynamic where the ability of foreign countries to support both US Treasury purchases and increased imports from the US is limited. This situation poses a significant dilemma for the US government, which has been focused on addressing the trade deficit. The downward trajectory of China’s US Treasury holdings since 2018, despite an overall surge in foreign holdings to an all-time high of $9.05 trillion in March, adds another layer of complexity to the economic landscape.