The U.S. Treasury recently surmised that China holds more U.S. debt that any other nation. China has been purchasing U.S. government bonds at a record pace and has easily overtaken Japan for the top foreign holder of U.S. debt in the form of U.S. government bonds. Both China and Japan are eagerly purchasing U.S. government bonds because they see them as a long-term investment with a reliably high yield given the interest payments.
In the month of June alone China purchased over $40 billion of government bonds to take its total holdings to more than a trillion dollars. Japan, though, wasn’t entirely unenthusiastic since it purchased $21 trillion in U.S. government bonds that same month.
China may have been biding its time to see how government gridlock would play out before making its next room. Why have some experts concluded that? Because dating back to the time that President Trump first got elected in November Japan has been the United States’ main creditor. It took a full seven months after Donald Trump’s election for China to overtake Japan as the main holder of U.S. debt.
Other international finance experts have speculated that China quickly unloaded U.S. government bonds in order to pump more money into its own currency. Whatever the reason, with the Chinese yuan more stable against the dollar the Chinese government feels reinvigorated enough to start purchasing U.S. government bonds like never before. It doesn’t hurt that the Chinese yuan is now stronger on the international market and stronger against the U.S. dollar compared to this point last year.
That said, the U.S. Treasury keeps meticulous records on foreign debt holders and says that China has essentially run the table for the last decade. Some of Trump’s supporters have wrung their hands worrying that these recent developments might give China more control over the United States’ economy. Trump, though, has batted aside these reservations by claiming that China owning so much U.S. debt actually creates a more vibrant domestic economy right here in the United States.
President Trump has been quite fixated on the trade deficit between the United States and China. For that matter, Trump has focused on a broad gamut of trade imbalances; Trump campaigned on the supposedly grotesque trade imbalances between Mexico and the United States. Trump has called China a currency manipulator and impugned its trade practices without actually launching a formal WTO investigation.