With the trade war between the U.S. and China heating up, Robert Samuelson warns us that China may just sell the trillions of dollars worth of U.S. assets it holds. While the idea is that this is a potential threat, it is not clear why.
Other things equal, China's decision to sell large amounts of Treasury bonds would drive up interest rates in the United States. That would be bad news, but if the Fed did not want interest rates to rise, then it could simply buy the Treasury bonds that China is selling, leaving interest rates unchanged.
China's decision to sell large amounts of U.S. Treasury bonds and other dollar-based assets would have the effect of lowering the value of the dollar against the yuan, ending its currency management, or "manipulation," as Donald Trump calls it. This would make U.S. goods and services relatively more competitive internationally and Chinese goods and services less competitive.
That could be a peace gesture in the trade war, as it would likely mean a sharply lower U.S. trade deficit with China, but this is not how Samuelson is presenting it.