Larry Fink on trade: 'China is our banker'

Krystal Hu

BlackRock (BLK) CEO Larry Fink isn’t optimistic that China will offer concessions to the U.S. as the two countries negotiate on trade. On Friday, China denied it had offered to slash the U.S. deficit by up to $200 billion, a goal President Donald Trump aimed to achieve through trade talks.

“China has, in my mind, more cards than we do,” Fink told Yahoo Finance Editor in chief Andy Serwer during an interview on Thursday. “China is our banker, Generally, when you borrow money from a bank, I don’t know how successful a strategy is when you try to harm your banker and they call your loan.”

The Wall Street billionaire, who called himself a globalist, noted that China has been the largest foreign holder of U.S. debt for nearly a decade. China owns $1.19 trillion of U.S. government debt in March 2018, according to the latest U.S. Treasury Department data. AsU.S.-China trade tensions have heated up since March, there are some concerns that Treasury bonds could be China’s trump card in a looming trade war — if the country dumps its U.S. Treasuries it would push down the value of the dollar.

China has been on a shopping spree of U.S. Treasuries to keep the valuation of its own currency weaker than the dollar, interest rate lower and exports more competitive. China has said it won’t cut its holdings of U.S. Treasuries anytime soon — selling too quickly would cause the value of its remaining portfolio to fall.

Besides the risks, Fink thinks reducing U.S. deficits by slashing imports from China could cause prices to increase. “We buy a lot of things from China because it provided cheaper products. If we create these trading agreements “that ultimately means higher cost again, the entire ecosystem could change” and result in higher inflation and the fall of the stock market, he said.

However, Fink sees the value of renegotiating trade deals. He said capitalism takes advantage of the law, and some trade treaties like NAFTA from 1994 are outdated. China, the second-largest economy in the world, has been  “more abusive in trade policy” and “has not lived up fully to the WTO.”

“I think how we negotiate our trade policy is a delicate matter,” said Fink. “So these are not easy things to negotiate. And the outcomes could be very negative.”

Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.

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