US Debt Held by Asia
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An opinion piece
In conversations here in Asia with policymakers, business executives and investor types, the issue of America’s credit rating is coming up with alarming frequency. To many in this region, it’s remarkable that we haven’t heard more from credit-rating companies as U.S. President Trump and his tech billionaire entourage, led by Musk, upend Washington.
The stability, transparency and accountability about which U.S. officials spent decades lecturing Asian governments is disappearing in real time. Also, the Trump-Musk tag team strangling the U.S Agency for International Development is nearly as big a gift to China as the Trump 1.0 White House’s 2017 exit from the Trans-Pacific Partnership trade bloc.
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Many of the biggest holders of U.S. Treasury securities are Asian central banks. Japan is the most exposed to Trump 2.0’s antics with $1.1 trillion of Treasuries. China is No. 2 with about $770 billion.
Late last month, Fed Chairman Jerome Powell effectively defied Trump’s craving for lower rates. Trump told CEOs in Davos a week earlier that he’d “demand” that interest rates go down. Of course, the tariffs Trump threatens and his mass deportation plans at home are sure to boost inflation, increasing the odds that the Fed’s next move will be to tighten, not ease.
If this clash unfolds as feared — including Trump’s hints at watering down the Fed’s mandate — nearly $3 trillion of Asian savings would be in harm’s way. Over time, Team Trump also mulled steps to devalue the dollar or even to default on U.S. debt.
The fallout from either gambit could make the 2008 Lehman Brothers crisis seem tame by comparison. The surge in U.S. yields would devastate asset markets everywhere. It also would have Asian central banks looking for a new safe haven with the scale and liquidity of the dollar.
