NON-PAYMENT OF CHINA DEBT GAINS CRESCENDO

U.S. President Trump’s moves against China have so far not taken the ultimate assault on Beijing, which means not paying the $1.1 trillion the U.S. owes to China. This may yet come to pass as there have been shrill voices calling for a repeat of what the nascent U.S. did to France—which is not to pay the bonds that it had issued to support the revolutionary war against Britain.

In an article entitled “America Could Actually Shirk its Debts to China” written for Breakingviews of Reuters earlier this month, John Foley said “with all the economic damage China wrought by covering up Covid-19’s spread, why should Uncle Sam pay back the $1.1 trillion it owes the People’s Republic? To do otherwise would cause market chaos, potentially trash the dollar’s status as a reserve currency and fail to slow the pandemic’s course.” Trump could order a stop to payment of interest or principal on debt to China, freeze Chinese assets and even seize them.

The hawkish Foley argued that it is strange why President Trump is taking an eternity to finally put the nail on the Beijing coffin, one that would be much tougher than the threat of sanctions against Huawei’s foreign manufacturing facilities when they use U.S. technology like microchips or equipment in manufacturing its smartphone components. “Trump will find it easy to effectively renege on those obligations. And as he sets out on a re-election campaign themed on blaming China for all his troubles, it’s only a matter of time before this bad idea gains wider traction. The bluntest way to void government borrowings from China is to default. That’s the financial-markets equivalent of a nuclear war. It’s not easy. The Treasury can’t easily see who holds individual securities, which are mostly parked in accounts at Federal Reserve banks. China buys through intermediaries, many abroad. Defaulting would send the $18 trillion Treasuries market into conniptions, just as Washington needs to borrow heavily. Default is also technically forbidden by the Constitution.”

Trump could also use the broad powers granted by the International Emergency Economic Powers Act. In just under 1,000 words, the 1977 authority grants the commander in chief the ability to do almost anything with any property that touches a country representing an “unusual and extraordinary threat.” Those powers include blocking “transfer of credit and payment.” COVID-19 has already been cited as a national emergency. If the U.S. has been “attacked” by a foreign country or nationals, Trump can even order property to be confiscated. #coronavirusimpact #COVID19