A top Treasury official signaled confidence in the U.S. government debt market, which at $14.5 trillion is the world’s largest.

“The U.S. Treasury market is a deep, robust market within the world and so we are confident that our economy, with the economy strengthening, that it will remain a deep, robust market,” Undersecretary for International Affairs David Malpass told a group of reporters in Brussels Wednesday.

‘Lot of Weight’

GOP lawmakers expressed similar confidence. “American debt is so well respected around the world -- if China pulls out a billion, somebody else will pick it up,” said Senator Chuck Grassley of Iowa. “I don’t think it will have any impact,” Senator John Kennedy of Louisiana said of the news from China.

Nonetheless, China’s position as a major purchaser of Treasuries gives it some leverage to try to shape U.S. responses -- including the Trump administration’s tough talk on trade policy.

“China is saying it owns a lot of U.S. debt and carries a lot of weight with what it does with it’s foreign exchange policy, so the U.S. can’t come at them and attack like that,” said Simons, who sees markets suffering if China stops buying Treasuries. “Any foreign country that has significant Treasury investments has a lot of leverage in this situation, the U.S. is going to be turning toward any buyer it can find.”

China’s latest statements come after the Trump administration helped pass the most extensive rewrite of the U.S. tax code in more than 30 years -- a bill that could reduce federal revenue by as much as $1.5 trillion over 10 years.

Growth Projections

Administration officials and Republican congressional leaders have said the bill will stimulate enough economic growth to cover those cuts -- but an estimate by Congress’s official scorekeeper found that federal deficits would still increase by more than $1 trillion over the coming decade.

If less demand for Treasuries caused a spike in interest rates, that “would, of course, slow the growth expectations of the Trump administration,” said Jared Bernstein, an economist who worked in Obama’s White House. “In the past few days, we’ve seen Treasury yields climb a bit, but the 10-year T bill is just back to where it was in early 2017, so not a ton to see there yet.”