Tariffs, counter-tariffs and headlines about trade wars are flowing like wine as the long-anticipated Trump campaign against China is finally shaping up. Given that futures are tumbling, the US trade deficit has just hit a decade low, and, oh yeah, we haven’t seen market volatility like this since the crash of ’87, you might think we have enough ominous financial storm clouds to worry about at the moment. But (if you listen to Reuters) you’d be wrong.

“China, holding Treasuries, keeps ‘nuclear option’ in U.S. trade war” blares their headline from this past Wednesday. Ah yes, the old “nuclear option” canard.

So what’s China’s so-called “nuclear option?” Well, it starts with a chart showing China as the largest foreign holder of US Treasuries, and it proceeds with the insinuation that China could dump all of its Treasuries on the market at once, causing (you guessed it!) a total obliteration of the market and a crisis for Uncle Sam and his almighty dollar.

That’s the theory, anyway. But is it really true? Could China really deploy its “nuclear option,” cause a market panic and sink the dollar?

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