President Donald Trump has ushered in a new normal that is bound to grate the 45th occupant of the Oval Office: China has now become more creditworthy than the United States.
That’s right: America now pays more to borrow money than China does.
Since 2015, when the Federal Reserve began raising interest rates, the gap between the countries’ Treasury bills has narrowed and then reversed, so that now the U.S. must offer higher yields than China when it sells one-year paper. That happened for the first time in November, when the spread between Chinese and American 10-year notes also collapsed, according to data compiled by Bloomberg.
Only 45 basis points separates these two nations in the bond market. China still pays a little more on benchmark securities. But that historic advantage, which coincided with the embrace of the multilateral alliances that made America great and that Trump disdains, may disappear altogether as investors lose confidence in the full faith and credit of the U.S.
Though Trump is unlikely happy with the development, some of his own policy decisions are major factors.
Bloomberg notes sever: “the slowing rate of U.S. economic growth, the U.S. government’s exploding debt, the diminished Treasury revenue caused by the 2017 tax cuts, and the Fed’s pursuit of a monetary policy keeping rates well above their average for the decade.”
As much as he loathes the Fed for following its mandate to reach equilibrium, Trump must accept the additional indignity of being America’s first president to pay higher yields than China to finance the U.S.