Why Trump won’t cancel US debt obligations toward China?

By Yu Miaojie Source:Global Times Published: 2020/5/7 21:59:34

Photo: AFP

Among the latest wave of ill-intentioned suggestions made by some US politicians to blame China and distract from the Trump Administration's errors in handling the COVID-19 crisis, defaulting on the US debt owned by China is the worst possible idea.

The push to "make China pay for the virus" by refusing to honor repayments on US bonds held by China came from US Senator Lindsay Graham and has been refuted by voices including Trump himself and his top economic advisor Larry Kudlow. 

Responding to the question of whether the US might not pay its debt obligation to China, Trump said that it's a "rough game" and said he "doesn't have to do that" and needs to protect "the sanctity of the dollar."

US politicians' "debt default" suggestion shows their beggar-thy-neighbor approach and irresponsible attitude in dealing with the COVID-19 crisis. The effort by Trump and his top advisors to dismiss the idea shows the increasing divisions within the country and also that the country can't risk the international status of the dollar.

Even if the White House did take the step blindly, it would cause a devastating blow to the international status of the dollar. In addition, given that China is not the only owner of US debt, the knock-on effect of the US' default move would trigger concerns among other debt owners such as Japan and Germany. This is why US officials and Trump rushed to refute the idea. It's also in the interests of the US.

The Trump government realizes that the move would bring more costs than gains for the US. The potential selloff of US bonds and ensuing financial turmoil that would be triggered by the default would cause an irreversible drop in the dollar, and the rise of the yuan. To lose the dollar's hegemony would be a huge blow for the US.

The author is a deputy dean with the National School of Development at Peking University. bizopinion@globaltimes.com.cn



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