Old China Default
Team Trump announced a deal with China to reduce tariffs for 90 days while they negotiate a final deal. Bessent even went on Morning Joe on MSNBC:
“What we have is a 90-day pause on the reciprocal tariffs. Both sides de-escalated by 115%. We are both at 10% on the reciprocal tariffs - and the 20% fentanyl-related tariffs against China are still on, and over the next 90 days, we have a mechanism to meet with the Chinese trade delegation again to discuss tariffs, non-tariff trade barriers, currency, labor and capital.”
That means we are imposing 30% tariffs with China and they are at 10% with us while the final deal is worked out.
Each network, and talking head, is spinning this their own way - and I admit I haven’t spent much time on it - but it sounds to me like China caved and came to the table and Trump gave them a way to save face.
GORDON CHANG: “Trump has given China an historic opportunity to step back from a collision with much of the world. Will a hostile Xi Jinping take advantage of what could be his last off-ramp? President Trump traded relief from our tariffs for China’s promise to open up its economy. The only way Xi Jinping can honor the promise is to give up most elements of communism because predatory trade practices are inherent in that system.”
Let’s see how this plays out.
HOWEVER, what NOBODY is reporting is what I just learned today about an old default in China that Trump is likely using behind the scenes as leverage.
I need to study it more but here's what I just learned about the huge debt that Communist China DEFAULTED on years ago and still owes the American people. I didn't know any of this - did you?
I’m guessing the Trump administration is leveraging this old default to renegotiate our trade agreement with China when no previous US administration has even tried.
Communist China currently owes American investors over one TRILLION dollars. The Chinese government doesn't like to talk about it and the US government apparently doesn't want to raise it, until now. But decades ago, Beijing defaulted on debt owed to Americans, as well as investors and governments around the world.
The story begins nearly 100 years ago, in 1913, when the old government of China began issuing bonds to foreign investors and governments for infrastructure work to modernize the country. As the country fell into civil war in 1927, paying these debts became increasingly difficult and the Chinese government eventually fell into default.
In April 1938, the Republic of China (ROC) issued a large volume of long-term sovereign gold-denominated bonds, secured by Chinese tax revenues, to private investors and governments to finance the war against Japan. These "gold bonds" specified repayment in gold or its equivalent value, which was a common practice to assure investors of value stability during times of currency instability.
There were also U.S. dollar-denominated bonds issued by the ROC, but these were more prominent in the early 1940s, notably the "American Dollar Bonds" of 1942, which were intended to absorb excess Chinese currency and were to be repaid in U.S. dollars after victory over Japan.
The China we know today would not have been possible without these bond offerings - which are now in default.
The Republic of China (ROC) defaulted on its sovereign debt in 1938 during its conflict with Japan.
The Communist Chinese Party (CCP) achieved military victory in China by the end of 1949, following the Chinese Civil War. The CCP, led by Mao Zedong, established the Communist People's Republic of China (PRC).
After the military victory of the Communists in China, the ROC government fled to Taiwan. The People’s Republic of China was eventually recognized internationally as the successor government of China. Under well-established international law, the “successor government” doctrine holds that the current government of China, led by the Chinese Communist Party, is responsible for repayment of the defaulted bonds.
More than 20,000 American investors currently own this debt. The U.S. government may also own Chinese war debt, unpaid since World War II.
While successor governments are usually bound by the debts of predecessor governments, the new Chinese Communist government refused to pay any of these claims.
The issue lay dormant for decades. Then, in 1979, as part of normalizing relations with the CCP, the Carter administration appears to have dropped the matter of the war debt entirely.
UK Prime Minister Margaret Thatcher said, in 1987, that for China to have access to UK capital markets, it had to honor the defaulted Chinese sovereign debt held by British subjects. Faced with that choice, Communist China agreed.
Unfortunately, the US failed to do the same. To this day, China has had access to U.S. capital markets while openly rejecting its sovereign debt obligations to American bondholders.
It doesn’t matter how old these bonds are - that is irrelevant. What matters is that this is a sovereign obligation. As recently as 2010, the German government made its last payment for reparations from World War I. In 2015, Great Britain made payments on bonds issuances that dated from the 18th century.
A private group of American citizens called the ABF holds a large quantity of these gold-denominated bonds. This citizen-led group, the American Bondholders Foundation (ABF), serves as trustee with power of attorney for some 20,000 bondholders, whose bonds are valued at well more than $1 trillion.
The Trump administration could do what the U.K. did in 1987 and view the repayment of China’s sovereign debt as essential to its national security interests. They could acquire the Chinese bonds held by the ABF and utilize them to offset (partially or in whole) the $850 billion-plus of U.S. Treasuries owned by China (reducing up to $95 million in daily interest paid to China). This would lower the US national debt.
Given that relations with China have deteriorated and there is bipartisan agreement on the threat from China, this matter could finally be acted upon by both Congress and the Trump administration.
China has not exactly disavowed the debt; it simply has selectively refused to pay it and none of this debt is currently reflected in the CCP’s “credit rating.”
SOLOMON YUE: "China owes U.S. investors over $1 trillion in U.S. bonds, plus interest and penalties for default. U.S. Congress could pass a bill to take away China's Foreign Sovereign Immunity, allowing U.S. citizens to sue China in U.S. courts for the defaulted bonds. The Foreign Sovereign Immunities Act (FSIA) generally grants foreign states immunity from lawsuits in U.S. courts."
Congress can also enforce the repayment of these bonds. The American Bondholders Foundation (ABF) is a citizen-led organization founded in 2001 to advocate for the resolution and repayment of defaulted sovereign debt of the People's Republic of China (PRC) held by approximately 20,000 families in the United States. That amounts to an average of $50 MILLION per family. The PRC has refused to pay the American holders of these bonds, despite settling with Great Britain in 1987.
The removal of immunity would also allow American citizens to sue China in civilian court for actions related to the coronavirus. That’s another threat that President Trump has mentioned in the past. He once said that Communist China owes the world TRILLIONS of dollars for COVID.
Trump could move in to kill 2 birds with 1 stone: forcing repayment of the $1 trillion bonds plus COVID19 reparations.
The Trump administration must be fully aware of this. Part of the latest “trade war” was likely to remind Communist China who is in charge - and it’s not them. While many nations reached out immediately to the Trump administration to negotiate new trade plans, Communist China remained defiant for a few weeks and its people turned on them. So did many nations in the world.
Now I know why Trump said: "Maybe I'll just write them a little crypto check and pay off our debt." Now you know why Bessent is monetizing assets like gold and the CCP has been stockpiling gold. CHECKMATE. It’s all connected. It has to be!
I need to do more research on this and connect more dots but if you have other sources or information you’d like to share with me - please do so.
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