The U.S. is the world’s largest economy and the biggest debtor nation in history. As of May 2021, the U.S. national debt reached a staggering $28.3 trillion, which is equivalent to about 128% of its gross domestic product (GDP) . The U.S. government borrows money by issuing Treasury securities, such as bills, notes and bonds, that are bought by domestic and foreign investors.
But who are the main foreign creditors of the U.S.? How much money do they lend to the U.S. and why? What are the implications and risks of this massive debt? In this blog post, we will answer these questions and more, by presenting the top 10 countries that owe the U.S. money, based on their holdings of U.S. Treasury securities as of April 2021, according to Investopedia.
1. Japan
Amount owed: $1.27 trillion
Share of total foreign debt: 18.5%
Highlights: Japan is the largest foreign holder of U.S. debt, surpassing China in 2019. Japan has been buying U.S. Treasuries for decades, as a way to diversify its foreign exchange reserves, which are mostly denominated in U.S. dollars. Japan also benefits from the low and negative interest rates in its domestic market, which make U.S. debt more attractive and profitable. Japan and the U.S. have a strong economic and strategic partnership, which is reflected in their mutual trust and cooperation.
2. China
Amount owed: $1.1 trillion
Share of total foreign debt: 15.9%
Highlights: China is the second largest foreign holder of U.S. debt, after being the top creditor for most of the past decade. China accumulates large amounts of U.S. dollars from its trade surplus with the U.S., which it invests in U.S. Treasuries to keep its currency stable and competitive. China and the U.S. have a complex and often tense relationship, marked by trade disputes, geopolitical rivalry and human rights issues. However, both countries have an interest in maintaining a stable and mutually beneficial economic exchange.
3. United Kingdom
Amount owed: $505 billion
Share of total foreign debt: 7.3%
Highlights: The United Kingdom is the third largest foreign holder of U.S. debt, after increasing its holdings significantly in recent years. The U.K. is one of the closest allies and partners of the U.S., sharing common values, interests and goals. The U.K. also has a large financial sector that deals with U.S. dollars and securities, making it a major player in the global market. The U.K.’s exit from the European Union (Brexit) may have also influenced its decision to invest more in U.S. debt, as a way to hedge against uncertainty and volatility.
4. Ireland
Amount owed: $318 billion
Share of total foreign debt: 4.6%
Highlights: Ireland is the fourth largest foreign holder of U.S. debt, after rising rapidly in the rankings since 2014. Ireland is a small but prosperous country that has attracted many multinational corporations, especially from the tech sector, due to its low corporate tax rate, skilled workforce and favorable business environment. Many of these companies use Ireland as a base to operate in Europe and beyond, and they often hold large amounts of U.S. dollars and securities in their accounts.
5. Luxembourg
Amount owed: $287 billion
Share of total foreign debt: 4.2%
Highlights: Luxembourg is the fifth largest foreign holder of U.S. debt, after maintaining a steady position in the top 10 for years. Luxembourg is a tiny but wealthy country that has a strong financial sector, hosting many banks, funds and investment firms. Luxembourg is also a major hub for international trade and commerce, with a high degree of openness and integration with the global economy.
6. Switzerland
Amount owed: $269 billion
Share of total foreign debt: 3.9%
Highlights: Switzerland is the sixth largest foreign holder of U.S. debt, after increasing its holdings significantly since 2015. Switzerland is a neutral and stable country that has a reputation for being a safe haven for investors. Switzerland also has a large and sophisticated financial sector, with many banks, insurance companies and wealth managers. Switzerland’s central bank, the Swiss National Bank (SNB), has been buying U.S. Treasuries as part of its monetary policy to prevent the appreciation of its currency, the Swiss franc.
7. Belgium
Amount owed: $256 billion
Share of total foreign debt: 3.7%
Highlights: Belgium is the seventh largest foreign holder of U.S. debt, after fluctuating in the rankings over the years. Belgium is a small but developed country that has a strong and diversified economy, with a focus on services, manufacturing and trade. Belgium is also home to several international institutions, such as the European Union (EU) and the North Atlantic Treaty Organization (NATO), which may influence its demand for U.S. debt.
8. Brazil
Amount owed: $235 billion
Share of total foreign debt: 3.4%
Highlights: Brazil is the eighth largest foreign holder of U.S. debt, after decreasing its holdings slightly in recent years. Brazil is the largest economy in Latin America and the ninth largest in the world, with a rich and diverse natural and human resource base. Brazil has a large trade relationship with the U.S., which results in a surplus of U.S. dollars that it invests in U.S. Treasuries. Brazil also uses U.S. debt as a reserve asset to manage its exchange rate and inflation.
9. Taiwan
Amount owed: $233 billion
Share of total foreign debt: 3.4%
Highlights: Taiwan is the ninth largest foreign holder of U.S. debt, after increasing its holdings slightly in recent years. Taiwan is an island nation that has a dynamic and export-oriented economy, specializing in high-tech and electronic products. Taiwan relies on U.S. debt to diversify its foreign exchange reserves, which are mostly denominated in U.S. dollars. Taiwan also has a close but unofficial relationship with the U.S., which provides it with security and economic support.
10. Hong Kong
Amount owed: $224 billion
Share of total foreign debt: 3.2%
Highlights: Hong Kong is the tenth largest foreign holder of U.S. debt, after decreasing its holdings slightly in recent years. Hong Kong is a special administrative region of China that enjoys a high degree of autonomy and a free market economy. Hong Kong is a major financial center and trading hub, with a large exposure to U.S. dollars and securities. Hong Kong’s currency, the Hong Kong dollar, is pegged to the U.S. dollar, which requires it to hold sufficient U.S. debt to maintain the exchange rate.
These are the top 10 countries that owe the U.S. money, according to Investopedia. These countries lend money to the U.S. for various reasons, such as diversifying their reserves, earning interest, stabilizing their currencies, enhancing their trade and strategic ties, and more. The U.S. benefits from this arrangement, as it can borrow money at low interest rates, finance its budget deficits, stimulate its economy, and maintain its global influence. However, this also entails some risks, such as rising interest payments, currency fluctuations, political pressure, and potential default. Therefore, both the U.S. and its creditors need to manage their debt relationship carefully and responsibly.