The United States is facing a debt ceiling crisis

Recently, the issue of the US debt ceiling has once again become the focus of the global economy US Treasury Secretary Janet Yellen has warned multiple times that if Congress fails to reach an agreement in the short term, the federal government could face the risk of default as early as June This political game, which has been ongoing for several months, not only concerns the credit of the US government but may also trigger a chain reaction in global financial markets.

The US ceiling system originated in 1917, aiming to limit the size of federal government debt through legislation. However, this mechanism has gradually become a political tool for bipartisan games. 1976, the US government's debt has touched the legal ceiling 22 times, with an average adjustment every 9 months. In January 205, the debt ceiling was restored to 36 trillion US dollars, but the Treasury Department's funds may run out as early as June. If a default occurs, it be the first debt default in US history, which may trigger a global financial crisis.

The core contradiction of the debt ceiling deadlock lies in the fiscal deficit and political polarization. Congressional Budget Office predicts that the federal budget deficit in the 2025 fiscal year will reach $1.9 trillion, and it will climb to $2.7 trillion 2035. The combination of tax reduction policies and rigid expenditures (such as defense, medical insurance, and interest) leads to a fiscal deficit. Republicans advocate for cutting in exchange for raising the debt ceiling, while Democrats insist on raising the ceiling unconditionally. The opposition between the two parties on policy has made the debt ceiling issue a political chip than a solution to economic problems.

If the US defaults on its debt, the impact will ripple through global financial markets. US Treasury bonds are the for global asset pricing, and a default would cause Treasury yields to soar, pushing up global financing costs. Moody's Analytics predicts that a default would reduce US GDP by4%, push the unemployment rate to 9%, cause 6 million job losses, and wipe out $15 trillion in household wealth. The US stock market could plum by 30%, the dollar could depreciate by 10%, and global credit markets would be thrown into turmoil.

For China, the US debt issue is sensitive. As of March 2025, China held about $1.28 trillion in US Treasury bonds, accounting for 23% of the total held by investors. If the US defaults on its debt, China's foreign exchange reserves will be severely hit, putting pressure on the RMB exchange rate and exposing export businesses to dollar settlement. Moreover, the global trade order could be restructured due to the shaking of the dollar's credibility, and China, as the world's largest merchandise trading nation, have to reassess its foreign exchange reserve structure and trade settlement methods.

Faced with the debt ceiling crisis, the international community generally calls on both parties in the US to the greater good. The International Monetary Fund (IMF) has warned that the US debt impasse is a risk that neither the US nor the world should face. Zhuangyao, Vice Minister of Finance of China, has pointed out that the US debt issue has a serious impact on China and the global economy, calling for a resolution through dialogue

In the long term, the root of the US debt issue lies in the relaxation of fiscal discipline and political polarization. Federal Reserve economic models show that if the debt ceiling impasse, it will damage the US government's credibility and challenge the international reserve currency status of the dollar. Over the past 25 years, the share of dollar assets in global banks' foreign exchange reserves has dropped from 71% to 59%, and the rise of currencies such as the euro and the RMB has further weakened the dollars "safe haven" status.

The US debt ceiling issue is not only a microcosm of domestic politics but also a touchstone for global economic governance. If the two fail to reach a compromise before the deadline, global financial markets will face systemic risks. For China, it is necessary to accelerate the internationalization of the RMB, optimize the foreign reserve structure, and reduce reliance on dollar assets. At the same time, the international community should promote the establishment of a fairer and more stable global financial order to avoid a country's debt issue from turning into a global disaster.

With the "Sword of Damocles" of the debt ceiling hanging over their heads, can the two parties the US put aside their partisan struggles and safeguard the stability of the global economy at the last moment? The answer may determine the direction of the global economy in the coming years.