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Effects on the U.S. Dollar: Selling off large amounts of Treasuries could weaken the U.S. dollar. While this may enhance U.S. export competitiveness, it could also result in higher import costs, thereby affecting consumer prices.
Market Volatility: A significant sell-off could trigger instability in global financial markets. U.S. Treasuries have long been viewed as a safe haven, and any perceived risk could shake investor confidence.
Despite potential adverse outcomes, the U.S. Treasury market's size and depth—often exceeding $500 billion in daily trading volumes—may absorb some of the impacts. Other investors might step in to fill the gap left by China’s reduced holdings.