The story is that in a desperate move, since it doesn’t have more imports to tax, China could dump $1 trillion in U.S. treasuries to screw the United States. No part of this makes any sense.

China bought up massive amounts of U.S. treasury bonds and other foreign assets to keep down the value of its currency against the dollar. This helped its competitive position, allowing it to continue to run a large trade surplus, a major anomaly for a fast-growing country. These purchases of treasury bonds were actually the “currency manipulation” that Trump constantly complained about during his campaign.

There is no doubt that a massive dumping of these bonds would create upheaval in financial markets, but the Fed would have little problem buying them up. Also, other central banks would rush to buy them as well, since they would not want to see the euro, pound, and yen suddenly jump by 20 percent against the dollar.

This would have the same impact on their relative competitiveness as if Trump imposed tariffs of 20 percent and also subsidized all U.S. exports by 20 percent. It would be very bizarre if China’s big weapon in against Trump was to give him exactly what he had demanded for a year and a half prior to the election. (Currency seems to have disappeared from Trump’s agenda since the election.)

China has very powerful weapons it can still use in the trade war. For example, it could shut U.S. firms out of its market. This would be a huge hit since its economy is already 25 percent larger than the U.S. economy on a purchasing power parity basis and 70 percent as large on an exchange rate basis. (Dumping a trillion dollars of treasury bonds would quickly close much of this gap.)

It could also mass produce items in clear violation of U.S. copyrights and patents. Imagine hundreds of millions of computers using Windows and other Microsoft software and Bill Gates not getting a penny. Imagine Pfizer not getting a penny for the drugs on which it holds patent rights.