China, the world’s second-largest economy, is gradually selling off billions of dollars in US Treasuries, according to the latest data from the US Treasury Department. The figures reveal that China reduced its Treasury holdings from $816.3 billion in December of last year to $767.4 billion in March, marking a quarterly decrease of $48.90 billion. Stephen Chiu, the chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence, believes that this indicates a clear intention to diversify away from US dollar holdings, despite the Federal Reserve’s potential rate-cut cycle. Meanwhile, former International Monetary Fund deputy director Desmond Lachman warns of a looming trade war between the two largest economies. Lachman highlights President Biden and former President Trump’s proposed “punitive import tariffs” against China, including increased tariffs on Chinese electrical vehicles, steel, aluminum, semiconductors, and solar cells. Lachman suggests that these tariffs are likely to prompt retaliatory measures from China, leading to an escalation that would harm both nations. He also warns that a full-blown trade war would add inflationary pressure in the US, as Chinese companies increase prices to cover the additional costs of entering the US market. This, in turn, would delay the start of a Federal Reserve rate-cutting cycle, depriving the country of a much-needed boost to growth.