China is steadily reducing its holdings of US Treasuries, according to new data from the US Treasury Department. The country’s Treasury holdings decreased from $816.3 billion in December to $767.4 billion in March, a quarterly decrease of $48.90 billion. Stephen Chiu, the chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence, believes this indicates a clear intention by China to diversify away from US dollar holdings, despite the potential for a Fed rate-cut cycle. This decrease in China’s ownership of US bonds comes as former IMF deputy director Desmond Lachman warns of a fresh trade war between the two largest economies. Lachman highlights the punitive import tariffs being proposed by both President Biden and former President Trump, and suggests that increased tariffs are likely to lead to retaliation from China, resulting in an escalation that would harm both nations. Lachman 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 further delay the start of a Fed rate-cutting cycle and deprive the country of a boost to growth.