We aren't the only market for china's exports.
They are far more intertwined in the world economy than the Soviets could ever dream (contradictory to their system).
With each passing year, China's grip on our throat and that of the world's get's tighter and tighter.
After the first 100 nuclear weapons go off, everybody is on a level playing field and the Chinese are a far, far bigger threat to the U.S. than the Soviet Union ever was...and the Chinese play the long game.
“If the Chinese decided to go scorched earth on our treasuries, the shock to our markets would cause most investors to panic the likes we haven’t seen in modern times. There are more people in the U.S. that would be hurt than in China.”
I agree with you that in many ways, communist China is a bigger threat to the US than the Soviets were. But their financial power in the Treasury market is nowhere near what you said.
The Chinese hold about one trillion, of the fifteen trillion outstanding. Plenty to flood the market on any given day, sending that day’s price into freefall, and sending interest rates up. To maintain that effect and make any real economic impact, they would have to keep dumping lots more treasuries on the market every day, selling their assets at the lower prices - losing money on the deal.
On the US side, the Federal Reserve can buy up the excess supply from China if they so choose - they already hold several times China’s total holdings. The Fed has long had procedures in place to maintain the Treasury market in the face of any potential market manipulator, and they have great enough purchasing power to do it.
Not only would China lose money on the trade if they chose to dump a lot of their bonds into a sinking market, they would suffer real economic difficulties from not having enough on hand. Treasuries serve as China’s dollar-based bank account/credit card, with which to settle their bills with foreigners.
For ships to be unloaded at their ports, payment must be made (overwhelmingly) in dollars. Oil (for which China is hugely dependent on imports) is priced in dollars globally. China needs to have $400-$500 billion in their Treasury account, just to maintain the rate of goods clearing their ports.
China’s currency would be greatly effected by any wholesale attempt to dump treasuries. Their treasury account is not just the bulk of their foreign exchange, it is also the bulk of their cash. It is what they use when they need to manage the value of their currency, and to shore up their stock markets when they go into a tailspin.
On the one hand, they must maintain an adequate reserve to defend their currency and markets (potential market competitors are always watching for any weakness they could press). On the other hand, selling a lot of treasuries in an attempt to hurt the US with higher interest rates, would simultaneously (although temporarily) drive their currency much higher.
Keeping their currency cheap has been a central practice in their unfair trading practices, to take business from others - so it would cost them real business, and their economy is exceptionally dependent on export of manufactured goods.
In percentage terms, the effects on China’s GDP would be much greater than USA. More than that however, a sudden, wholesale dumping of treasuries risks catastrophic collapse of China’s real economy and markets in several ways, but not the real economy of the US (markets could freak out for a while).
Their buying and selling of treasuries is driven by their own need to manage their currency and accounts. They can only afford to use sales/purchases as a weapon on a short term, tactical basis, more for psychological rather than structural effects. Net, they have been sellers of treasuries over the last few years, basically because they had to spend the money - when their stock markets crashed, to support their currency in the face of capital flight, and because they are in debt up to eyeballs.
In addition to the Treasury market, the US has other financial options that could devastate China financially (like sanctioning their banks for money laundering), but China has no other comparable policy options against the US. If China were to openly use treasury bond sales as an attack, the likely responses would be much worse for them.