Japan is actually the largest foreign holder of U.S. debt, with China in second place, followed by the United Kingdom in third. But overseas central banks have not shown an enormous appetite for U.S. debt recently: China spent much of 2020 reducing its holdings of such debt, and so did Japan. (It should be noted that these things do not move in a linear fashion — they’ll go up and down. But the recent trend is down.) For a long time, China bought up U.S. bonds for many of the same reasons as any other institutional investor, and also because Beijing has a preference for a relatively strong dollar, which makes Chinese exports more attractive to U.S. buyers. But that math is changing a little bit, because China also is a big importer of U.S. goods, from farm produce to aircraft. (Before President Trump launched his trade war, China accounted for 20 percent of U.S. motor-vehicle exports, up from less than 1 percent in 2001.) You wouldn’t know it from our political conversation, but it’s actually been quite some time since Beijing was making serious efforts to drive down the value of its currency in pursuit of an export edge. Even a brutal and nonconsensual government will do that only for so long, because it is in reality a policy of artificially lowering your own people’s standard of living and devaluing your own assets. Back in the queasy days of 2009, China’s top banking regulator gave a blunt assessment of Beijing’s relationship with U.S. debt as it appears in trillion-dollar installments: “We know the dollar is going to depreciate. So, we hate you guys, but there is nothing much we can do.” That was then; figuring out what might be done about the same relationship now is one of the aims of Beijing’s “dual circulation” strategy.

We spend a lot of money on Social Security, Medicare, Medicaid, and the military — sobering, incomprehensible, vertigo-inducing amounts of money. If interest rates on our debt go back to something closer to their historical averages, then that would add about a Pentagon’s worth or a Social Security’s worth of new spending obligations onto the federal budget. For context, interest payments could easily jump from around 11 percent of all federal tax revenue to half of all tax revenue — and they conceivably could jump to more than 100 percent of tax revenue, which would be catastrophic. Unlike farm subsidies or cowboy-poetry festivals, paying the interest on the national debt is not really optional. Defaulting would crater the U.S. economy and set off an economic crisis unlike anything the world has ever seen.