Advice to Tokyo about that US debt weapon: Use at your own risk

Japan’s hint at selling US debt may be a bluff — but pulling the trigger would still mean collaborating with China against America’s position.

Japan holds over $1 trillion in United States Treasury debt. Or, in other words, the US owes Japan a trillion dollars, borrowed to fund America’s profligate spending.  

Last week, Japan’s finance minister, Katsunobu Kato, suggested Tokyo might use its treasury holdings — and the threat to unload them — as a card against Washington. This would be part of upcoming talks over the Donald Trump administration’s tariffs recently imposed on Japan and most other countries.

One understands Japan’s frustration over being “tariffed.” Japan has been a good ally. And US officials routinely describe ties with Japan as rock-solid, the most important bilateral relationship.  

So it’s got to sting to be treated like the People’s Republic of China (PRC), a country that aims to destroy America, and has killed well over half a million Americans with fentanyl over the last decade plus.

But Japan ought to be careful about issuing threats, even veiled ones, about its US debt, much less acting on them. This is not a US-versus-Japan winner-takes-all situation.

And Tokyo, while loath to recognize the fact, needs the US more than America needs Japan, both militarily and financially. Take away American support and Japan would find itself under unbearable pressure from the PRC.

The chain reaction no one wants

Foreigners potentially wielding America’s debt as a weapon is a well-known danger, though nobody much wants to think about it.

The usual scenario is China (which holds around $800 billion in US debt) dumping its T-bills on the market to hurt the Americans. But few people envisaged Japan initiating a chain reaction that leaves the US fiscally and morally incapable of responding to a Chinese attack on Taiwan, the Philippines and/or Japan itself.  

Weaponize debt, and the US-Japan alliance will end. Americans in large parts of the country will view the Treasury’s sell-off as treachery.

Moreover, if Japan pulls the debt trigger, it will be collaborating with China to undermine US preeminence. This could weaken America’s ability to sustain the military presence that has maintained an equilibrium in the Far East and protected Japan.

Japan ought to view its actions not in terms of trade negotiations. Instead, as one observer puts it: “What Japanese missteps will fill the Panda with glee and excite the dragon’s appetite for conquest? China is an active corrosive agent. Why would Japan wish to become an accelerant or a collaborator in its own demise?”

Misreading the American mood

One gets the impression that Japanese officials and their political class have too narrow an understanding of America and Americans. Their view is largely shaped by the diplomats, think-tankers, academics and lobbyists they brush elbows with in Washington.

Japan does not grasp how large swaths of the US have little trust in the government and little interest in foreign wars.

During the recent Berkshire Hathaway annual shareholders meeting, Warren Buffett made specific comments on Japan, business opportunities, and tariffs. He made a “free trade” comment, basically supporting the deportation of US jobs, which was received with hearty applause.

That response shows not the divide, but the chasm between the investor class and middle America, so-called flyover country. Hint to the Japanese who were tuned in: the US investor class is not the US warrior class. The wealthiest top 10% of Americans own 88% of equities. In contrast, the next 40% hold the remaining 12%.

As for the bottom 50%, they don’t own stocks — they own debt. That’s also where the military recruiting offices are concentrated.

The smug elite can no longer claim that the peasant class will simply go where they’re dispatched. 

No more playing ‘attending physician’

After the Afghanistan debacle – 20 years of body counts, expended national wealth and lost opportunity costs – Americans have adopted a post-World War I attitude toward the world. There’s growing hostility toward the globalists and neocons.

Many are just waiting for the wrong person to throw patriotism in their faces. Especially after the Joe Biden years of burning flags and the era of toppling statues.

The Japanese who are taking cues from their friends in Washington should be informed that the Gulfstream-riders and the coastal elites are clueless when it comes to citizens outside their narrow class.

Issuing threats might feel good, but it will be poorly received by the people Japan counts on to protect it.  

Don’t think so? The Japanese ambassador can head to Akron, Ohio, or Erie, Pennsylvania, and explain things to the local Rotary Clubs. Mention the trillion dollars in US debt and the implied threat that comes with it. The audience will point out that a US serviceman who dies defending a country whose young people won’t join the military is worth a lot more than a trillion dollars.

Tokyo would do better to act as an “attending physician” to help America recover from the insane spending sickness of the last 25 years. It should help support America as the US tries to rebuild its military and its industrial base.

If the patient recovers, it will be grateful – and far more willing to protect Japan.

Grant Newsham is a retired US Marine officer and former US diplomat. He is the author of the book When China Attacks: A Warning To America.

This article, originally published by JAPAN Forward, is republished with permission.