From trade war to currency war is a perilously simple step. As the US-China tariff skirmish escalates and the renminbi sinks against the dollar, there is a growing risk that President Donald Trump may take it. The more specific concern in the markets is that the US administration could intervene directly to weaken the dollar. While the yen, the euro and sterling are all potential targets, the greatest scope for global financial instability relates to the US and China.

In a strikingly vivid phrase Paul Volcker, former chairman of the Federal Reserve, once referred to the close financial ties between the US and China as a potentially “fatal embrace”. Those ties include the fact that China holds more than $1tn of US Treasury securities. Against the background of rumbling trade friction between the two countries, the obvious nightmare scenario would be the weaponisation of Chinese official foreign exchange reserves against the US.

There are straws in the wind. In the three months to the end of May, China’s holdings of US government IOUs were reduced by $20.7bn to $1.1tn. This is still the biggest foreign stake in the US Treasury market, although it has shrunk by $81bn since June last year. But over the longer run Chinese ownership of outstanding US Treasuries has fallen from a peak of 14 per cent in 2011 to 7 per cent at the latest count. Clearly, Beijing’s readiness to finance America’s burgeoning fiscal deficit is waning. The question is how sinister an interpretation to put on this evacuation from the world’s biggest sovereign debt market and whether everyone is too complacent about the threat of weaponisation.