Trade tensions between the United States and China escalated in September, with China throwing the latest punch. On September 13, Beijing announced anti-dumping and anti-discrimination probes into U.S. semiconductor imports, just days before high-level trade talks in Madrid were scheduled to start. The timing of the move reignited fears of another round of economic confrontation between the world’s two largest economies. On top of these tensions, gold continued its strong performance of 2025 in September by rising more than 10 percent in U.S. dollars, as investors sought safety from mounting geopolitical and policy uncertainty. Together, these developments highlight the fragility of the trade relationship and provide context for China’s continuing reallocation of its foreign-exchange reserves away from U.S. Treasuries and toward gold.
Given our latest projections, China’s Treasury holdings are likely to have dropped to approximately $718 billion by the end of September, extending the decline seen throughout 2024 and early 2025. The most recent estimates indicate a continuation of the long-running reduction in dollar-denominated debt exposure. Between 2016 and July 2025, China’s Treasury holdings fell from roughly $1.24 trillion to about $731 billion, a reduction of more than 40 percent, as tariffs, trade restrictions, and sanctions weighed on commerce between the two economic giants.
Over the same period, China’s official gold reserves rose from about 1,778 tonnes to approximately 2,304 tonnes, an increase of roughly 30 percent in physical holdings[1]. With gold prices climbing, the dollar value of China’s gold portfolio expanded from about $63.5 billion to $283.2 billion, lifting gold’s share of total foreign-exchange reserves from about 2 percent to 8.5 percent. The ratio of gold to Treasury holdings was even more pronounced, rising from about 5 percent in 2016 to our projection of roughly 40 percent at the end of September (see exhibit 1).
The roots of this reallocation trace back to the trade and investment measures introduced during the first Trump Administration, which heightened China’s awareness of the risks embedded in dollar-based assets. Beginning in 2018, successive Section 301 tariffs-imposed duties on hundreds of billions of dollars of Chinese exports, raising the effective U.S. tariff rate on Chinese imports by more than 15 percentage points and prompting significant retaliation by Beijing, including reduced agricultural purchases from U.S. farmers[2]. The Foreign Investment Risk Review Modernization Act, signed into law on August 13, 2018, expanded the authority of the Committee on Foreign Investment in the United States, while the Commerce Department’s Entity List restrictions on firms such as Huawei demonstrated how access to U.S. technology and finance could be curtailed through executive action. The Biden Administration later reinforced and, in some cases, expanded these restrictions, tightening controls on advanced semiconductor exports, outbound investment, and supply-chain dependencies. The second Trump Administration has since renewed this confrontational approach, signaling a potential escalation of tariffs and broader restrictions on trade and capital flows with China. China’s September 13 semiconductor probe underscored that even high-technology trade remains deeply entwined with geopolitics.
Exhibit 1: China diversifying away from the US and the US Dollar.
Source: Peoples Bank of China, IMF, Bloomberg, ICG Advisors
In response, China has adjusted its reserve management philosophy. U.S. Treasuries still provide liquidity and global acceptance, but they also carry jurisdictional and policy exposure. Gold, by contrast, is a non-liability asset that sits outside the control of any single government and tends to appreciate during periods of market or political stress. Expanding gold holdings therefore serves as both a financial hedge and a form of geopolitical insurance.
Exhibit 1 illustrates the outcome clearly. China’s diversification away from Treasuries and into gold is not an abandonment of the dollar system but a calculated effort to build resilience. The events of September and early October, including the sharp rise in gold prices, reinforce that strategy. In a world increasingly defined by protectionism, technological rivalry, and financial coercion, China is seeking to safeguard the value of its reserves through a more balanced and politically neutral asset mix. This trend is likely to continue if not accelerate over the coming years.
As always, stay tuned.
[1] – Peoples Bank of China, Bloomberg.
[2] – Tariff estimates derived from the Office of the U.S. Trade Representative (USTR) Section 301 actions and Chad P. Bown, “The US–China Trade War Tariffs: An Up-to-Date Chart,” Peterson Institute for International Economics (2020).