Could Europe Really Leverage its $12.6tn Pile of U.S. Assets?

We encourage you to read this article, written by the Financial Times Alphaville, for those who may be concerned about U.S. vulnerability due to the magnitude of our treasuries owned by foreign governments. It’s a fear that resurfaces almost every time there’s geopolitical tension between the U.S. and any other country considered to be an economic powerhouse. Concerns of our economic vulnerability are not unfounded, but the “dumping” of U.S. treasuries is much easier said than done.

In this Financial Times analysis, the authors examine whether Europe can use its $12.6 trillion in U.S. financial assets as leverage against escalating American tariffs and geopolitical threats. While analysts at Deutsche Bank suggest this "weaponization of capital" could exploit America’s reliance on foreign funding, the article remains skeptical for three reasons: 

• First, most of these assets are not owned by foreign governments.  They are privately owned by pension funds, insurers, banks, and millions of individuals, making government-mandated divestment legally and logistically difficult. 

• Second, the sheer scale of the holdings means there are no alternative markets deep enough to absorb a mass sell-off. Remember: There are two sides of a transaction and finding buyers for this magnitude of sale would not be quick or easy.   

• Finally, any "fire sale" could devalue the U.S. dollar and European portfolios, which could potentially cause a European recession. “Mutually assured destruction” is the same reason China has threatened similar action over the years but has yet to follow through.

Ultimately, the authors argue that while investors may quietly reduce US exposure, using these holdings as formal political retaliation is improbable.

If you aren't able to read the Financial Times Alphaville article because you don't have a subscription, here is a PDF of the article.