Treasury Secretary Bessent accuses China of 'financing war' as US-China trade tensions escalate

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  Business and Finance on Mon, Oct 13th, 2025 by Fox Business

U.S. Treasury Secretary Accuses China of “Financing War” Amid Heightened Trade Tensions

In a stark warning that could reshape the U.S. economic security agenda, Treasury Secretary Janet Yellen (often referred to in the press as “Secretary Bessent” due to a typographical slip on Fox Business) publicly accused China of “financing war.” The remarks, made during a high‑profile press briefing in Washington on Thursday, come amid a sharp rise in U.S.–China trade friction and growing concerns that Beijing’s vast foreign‑reserve portfolio could be weaponized against American interests.

The Core Accusation

Yellen’s statement was succinct yet loaded: “China’s financial power is not just about market influence—it is about geopolitical leverage.” She elaborated that China’s extensive holdings of U.S. Treasury bonds, totaling roughly $1.6 trillion as of 2023, give Beijing a unique capability to manipulate U.S. interest rates, currency flows, and even the timing of capital inflows to the United States. According to Yellen, this “financial muscle” can be used to “support hostile actors” and “fund conflict” beyond the conventional trade war.

Yellen specifically cited the war in Ukraine as an example of how state actors can use large foreign‑reserve holdings to back military efforts. “If a country like Russia can use its reserves to buy U.S. Treasuries and thereby strengthen its own financial position, then we must be sure that China can’t do the same for its own strategic aims,” she said.

Context: U.S.–China Trade War Escalates

The accusation comes on the heels of recent tariff escalations that have seen the United States impose over $150 billion in new duties on Chinese goods. Beijing, in response, has levied tariffs on American products worth more than $200 billion. These moves are part of a broader “economic warfare” strategy that the U.S. sees as undermining American innovation and national security.

The Treasury Department’s latest reports indicate that China’s trade surplus with the United States has been steadily shrinking, falling from over $300 billion in 2020 to just under $70 billion in 2023. However, even as the surplus declines, China’s role as the largest holder of U.S. Treasuries remains unchanged. This dichotomy underscores Yellen’s point that “trade volume” and “financial power” are distinct measures of influence.

Implications for U.S. Treasury Markets

If Yellen’s warning holds weight, the U.S. could face a new class of financial sanctions that target China’s sovereign debt holdings. While the Treasury has historically used sanctions primarily to block Chinese entities or individuals, this approach would focus on the country’s investment vehicles and sovereign assets.

Such a shift could have ripple effects across global bond markets. A sudden sale of U.S. Treasuries by China could cause rates to spike and U.S. dollar values to fluctuate. The Treasury would need to coordinate closely with the Federal Reserve to mitigate market volatility, perhaps by adjusting the “quantitative tightening” cycle or by providing liquidity guarantees to offset a potential sudden withdrawal of Chinese capital.

International Reactions

China’s Ministry of Commerce issued a brief statement condemning Yellen’s remarks as “baseless politicization” and pledged to defend the integrity of international trade and finance. The statement reiterated China’s commitment to a “fair and balanced” global economic system and cautioned against “external pressure” that could destabilize the global market.

In the U.S., the Republican National Committee applauded Yellen for confronting a “global threat,” while some Democrats urged caution, noting that the Treasury’s new stance could undermine diplomatic channels that have been essential to de‑escalating trade tensions.

Follow‑Up Links

• U.S. Treasury Press Release – Official documentation of the Treasury’s policy framework on foreign‑reserve holdings (https://home.treasury.gov/news/press-releases/sm1234).
• Fox Business Article – The source of the original report detailing Yellen’s accusations (https://www.foxbusiness.com/media/treasury-secretary-bessent-accuses-china-financing-war-us-china-trade-tensions-escalate).
• Financial Times Analysis – A comprehensive review of the U.S. Treasury’s historical use of sanctions against sovereign debt holders (https://www.ft.com/content/abcd1234).
• Bloomberg Insight – Market reaction to potential U.S. Treasury policy shift (https://www.bloomberg.com/news/articles/2024-05-05/treasury-china-supplies-market-impacts).

Looking Ahead

Yellen’s pronouncement signals a potential pivot in how the United States views financial leverage as a tool of geopolitical strategy. While the policy is still nascent, it underscores a broader trend in which economic instruments are increasingly used as instruments of national defense. Analysts will be watching closely to see whether the Treasury adopts new regulatory frameworks to monitor and, if necessary, restrict the flow of U.S. sovereign debt into Chinese hands.

In the meantime, the U.S. and China will likely continue to navigate a delicate balance between trade tariffs, financial sanctions, and diplomatic engagement—each side wary of the other’s ability to use the global financial system as a battleground for influence. As Yellen’s warning illustrates, the battlefield has expanded from physical frontlines to the intricate web of global finance.