# Tail Risk: China-US Relations

By [Albert's Import](https://paragraph.com/@albertsimport) · 2018-11-23

international relations, risk, china

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Wishing everyone a belated Thanksgiving. If you have some time today or over the weekend, I recommend watching this video of VP Mike Pence talking about the administration’s approach to China

Then follow it by watching this video by Hank Paulson who proposes a different approach but seem clearly pessimistic about where this is headed.

[![]({{DOMAIN}}/editor/youtube/play.png)](https://www.youtube.com/watch?v=c1Y7FCgzl3U)

The deterioration of US-China relations is a massive tail risk. The recent sell-off in the stock market may be a partial reflection of that but doesn’t even begin to capture the potential downside. As an important reminder, China is the largest holder of US sovereign debt, which they could [use strategically by selling treasuries](https://etfdailynews.com/2018/09/23/china-continues-to-dump-u-s-treasuries/). That could drive up US borrowing rates just at a time that the Trump administration tax cut is resulting in massive deficits, making borrowing more expensive.

I have talked to a number of American and Chinese entrepreneurs over the last few months about this. What was most surprising to me was how few seemed to have the possibility of a US-China cold war on their radar as a real risk.

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*Originally published on [Albert's Import](https://paragraph.com/@albertsimport/tail-risk-china-us-relations)*