US-China trade war as mutually assured destruction

Analysts at Fitch Ratings aren’t looking out for China as they tiptoe up to downgrading Washington’s AAA credit rating. But written between the lines in bold font is how a US default would give Beijing the big trade war win Xi Jinping has been seeking.

To be sure, China won’t love the paper losses on its stockpile of US$870 billion of US Treasury securities. Nor will Chinese leader Xi or Premier Li Qiang welcome the ways in which surging US debt yields make China’s 5% growth target less attainable.

But the immediate devastating blow to US leadership and credibility from a default would play right into Xi’s goal of increasing the yuan’s role in finance and trade — and thus giving China a bigger say in global economic affairs.