Does it suit China to blow up the US debt table?

Technically, China would have the ability to blow up American debt, even though it holds “only” about 800 billion dollars in Treasuries. Yet it is unlikely to do so.

By Valerio Giunta, CEO of Startup Italia and Founder of Banking People

While the markets tremble, the dollar weakens and long-term US Treasury yields soar, markets around the world watch the situation with concern and seek an answer to a fundamental question: can — and above all is it really worth it — for China to blow up the American debt table? Or will the United States, China and the rest of the developed countries, as happened in two crucial moments of recent history, find a strategic compromise, with Beijing and the others once again financing American expansion, and Washington guaranteeing access to its market together with a renewed stability in international trade?

To answer that, we need to go back in time and look at two historically recent episodes.

1971: Nixon and the end of the Gold Standard (when a Republican becomes “Keynesian”). Richard Nixon, a Republican president but a pragmatic one, faced a historic inflationary crisis and currency turmoil. The dollar was under attack, gold reserves were running low and the United States were still bogged down in the Vietnam war. On 15 August 1971, Nixon announced the end of the dollar's convertibility into gold, sealing the death of the Bretton Woods system. At that moment, he adopted openly interventionist policies:
- price and wage controls (to contain inflation),
- high public spending, even in deficit
- abandonment of any gold anchor, with the aim of supporting domestic demand and external competitiveness.

Nixon himself openly admitted his “Keynesian turn”, with the famous statement "Now I am a Keynesian in economics". The result? The USA, freed from the gold constraint, could print dollars to revive the economy. And the world, though reluctant and lacking the alternatives and the strength to do otherwise, was forced to accept the dollar as the global reserve currency. No one wanted — or could — blow up the table, even if the Yom Kippur War would later end up bringing Europe to its knees from an energy standpoint, and therefore economically too (but that is another story).

2008–2010: Obama, Quantitative Easing and the G2 with China. After the collapse of Lehman Brothers, the risk was a systemic collapse of the global financial system. The Obama administration, with the Fed's support, launched a strongly expansionary policy, adopting massive fiscal stimulus, zero interest rates and Quantitative Easing on an unprecedented scale. At the same time, the strategic US-China dialogue, the so-called "G2", was strengthened. China, then the second-largest foreign creditor of the United States, kept buying T-Bonds, allowing the US to finance its debt at low cost. In return, Washington did not obstruct Chinese exports, guaranteeing access to the market and stability for the dollar. A symbiotic but unstable balance. Yet once again, the table did not blow up.

2025, the current scenario: rising yields, growing distrust. Today American debt has exceeded 36,000 billion dollars. The 10-year term premium has turned positive again. 30-year Treasury yields are approaching 5.1%. And the dollar is losing ground significantly against safe-haven currencies such as the Swiss franc, the yen and the euro. The signals are clear: investors want to be paid more to hold American debt, and there is a decoupling between the dollar and global confidence, while the Fed is trapped between tariff-driven inflation and the need to support liquidity to energize the US economy, which Trump wants to grow also through a weaker dollar and more competitive exports.

And China? It still holds around 800 billion dollars in T-Bonds. It has reduced its exposure to US Treasury securities, but has not yet pulled out completely. It knows that a dollar collapse would also hit the value of its reserves and its exports. It should also be remembered that China has repeatedly declared its intention to build a system alternative to the dollar, through the internationalisation of the yuan, the promotion of independent payment platforms and bilateral agreements in local currencies. However, it is equally clear that Beijing (together with the BRICS) is not yet able to build a fully autonomous and globally competitive system compared with the one led by the United States.

That said, technically China would still have the ability to blow up the table, despite holding "only" around 800 billion dollars in Treasuries. History offers significant examples: at times, marginal holders of debt have been enough to trigger systemic crises. This was the case with the United States and Eastern European debt in the 1970s and 1980s, or with Europe (especially Germany and France) taking revenge on the debt of Latin American countries. In the case of Eastern Europe, many countries had taken on foreign-currency debt to finance development and openness. The US, with limited exposure, strategically refused to refinance, and Europe followed, causing a chain crisis.

In Latin America, after a decade of easy lending, the rise in US rates and the withdrawal of European credit triggered a chain of defaults: Mexico, Brazil, Argentina. In both cases, the decisions were political, and the credit lever was used as a strategic tool. These precedents show how even a non-dominant position in quantitative terms can generate devastating systemic effects if used in a targeted way. Hence the deadlock: either an agreement is found, or the world enters a systemic break scenario that harms everyone. In extreme cases like this, the spectre of “bombs” is not just an economic metaphor.

What if Trump were in charge? Hypotheses on an unstable balance. In 2025, the scenario has become even more complex with Donald Trump's return to the White House. A president who is openly free-market in words, but interventionist in practice, and who has repeatedly called his predecessors "incompetent" for having allowed China to play a dominant role in the global trade and financial system. What is Trump doing, in short?
- Selective containment of public spending. Trump has relaunched the Department of Government Efficiency (DOGE) with the aim of digitising and streamlining the state machine, entrusting it to Elon Musk. Spending cuts are selective, still more symbolic than structural.
- Tariffs as a tool of financial pressure. Trump wants to force exporters to reinvest in US debt, imposing tariffs that work as an indirect fiscal lever. A form of geopolitical blackmail: "if you want to export to America, buy our T-Bonds".
- Domestic growth without ready fundamentals. Trump aims to revive US manufacturing, yet skilled workers are lacking and global supply chains have not come back, so the risk is to want growth without structural foundations, increasing debt and inflationary pressures.

The only possibility now is to reach a sustainable agreement that is strategic and beneficial for everyone. It is also likely that China will not limit itself to discussing only economics and finance. It may in fact put heavy geopolitical dossiers on the table, such as the Taiwan issue, and propose an agreement on the crisis in Ukraine, leveraging its growing ties with Russia within the BRICS bloc. In this scenario, global balances are redrawn not only on stock markets and in currencies, but also in spheres of political and military influence.

The most likely hypothesis is that the economic negotiations of the so-called G2 will become the centre of gravity of a new world order (from which Europe is trying not to be left out...). History teaches that the United States have overcome crises of confidence and debt only thanks to strategic compromises, especially with China. In 1971, with Nixon. In 2010, with Obama. Today, with Trump, the situation is more uncertain, so if the United States want to remain the world's leading economy, they must find a new balance with China. If they do not, the future of the dollar as a pillar of the global system could truly be in question. And at that point, does it really suit China to blow up the table?