Here’s what’s ‘more disturbing’ to Larry Fink about the future of US-China trade than anything else
The outcome of the trade war and ongoing negotiations between the world’s two largest economies is a looming danger, BlackRock CEO Larry Fink told CNBC on Sunday — but not for its immediate impact on markets or growth.
the U.S.-China trade war on U.S. Treasury bonds.
“What worries me about the conversation between the U.S. and China — China has a $1.3 trillion pool of U.S. Treasurys, they’ve been accumulating U.S. Treasurys because of the trade deficit,” Fink told CNBC’s Hadley Gamble in an interview.
“Now as China reduces its trade deficit with the U.S., the likelihood of them reducing their need for U.S. Treasuries is large,” he added.
China is the biggest buyer of U.S. sovereign debt. In January, media reports revealed that officials in Beijing recommended the Chinese government lower — or even stop — its buying of U.S. debt.
That prospect is something market analysts have described as a major threat to markets, as Treasury financing needs climbed significantly in 2018 and are projected to continue rising more sharply than in recent years.
And as CEO of the world’s largest asset management fund, Fink always has his eye on the long term. He explained that “over the next few years — and this is something we are not talking about enough and we need to be talking about this — we should expect over the number of years ahead, less ownership of U.S. Treasuries as their deficits shrink.
“But that’s at the same time the U.S. deficit still seems to be growing at a trillion dollars,” Fink added.
“So it is long term a little more disturbing for me to see the implications of smaller Chinese purchases of debt with rising deficits.” He asked: “So the bigger question is: who’s going to be the substitute buyer to buy this?”