For the last couple of weeks there has been talk in Washington
DC there has been talk of escalating the trade war with China
with “non-tariff” measures. An example of a “non-tariff”
measure, the Trump Administration is talking about pulling
Chinese stocks of the New York Stock Exchange.
Before going into more specifics about that scenario, know that
China is both the biggest foreign owner of US debt and the
biggest buyer of US mortgage bonds. In July 2019 alone, China
bought Fannie Mae, Freddie Mac and Ginnie Mae agency bonds
totaling some $14B. That $14B is the equivalent of more than
33% of all net purchases of US agency bonds for that one
month alone.
Just as in the New York Stock Exchange, liquidity in the
mortgage market depends on investors wanting to buy
mortgage bond securities or MBS. If China doesn’t want to buy
those MBS and dents demand for that market, it could well
cause home-loan rates to go up. (And we all know what
happens within the housing market when home-loan rates go
up…home sales go down.)
Another scenario for China, one that could destabilize the US
economy faster than not buying MBS, China could start
dumping US Treasury bonds or US debt. Currently, US debt
stands at a record $22T. China, in May 2019, held $1.11T of
that debt, or approximately 27% of the $4.1T debt held by
foreign countries. According to US Treasury Department data,
China’s $1.11T of that debt in May 2019 alone was followed by
Japan at $1.10T, Britain at $332B and Brazil at $30.5B.
Also know that the White House is considering a trade war
with Britain as well directed at British goods brought into the
US by Air Bus.
Currently, the White House is focused on Chinese stocks as a
way to escalate the trade war with China. White House trade
advisor Peter Navarro confirmed with CNBC last week,
“There’s some interesting and significant transparency issues
with Chinese stocks…” but would not go further.
Representatives from China and the US are meeting at the end
of this week to discuss trade war issues at the end of this week.
Keep your eyes and ears open as your livelihood could be
affected.
In the meantime, the White House has not yet been asked
whether or not it is prepared for Chinese retaliation (dumping
its US debt and shunning the US MBS market) if the US uses
“non-tariff” measures to escalate the US-China trade war.
Again, keep your eyes and ears open.
Also read: https://timandjulieharris.com/2019/08/28/what-it-could-mean-for-housing-if-recession-comes.html, https://timandjulieharris.com/2019/09/14/tariffs-already-hitting-housing.html, https://timandjulieharris.com/2019/09/04/new-study-36-of-homebuyers-anticipate-recession-in-2020.html
