Navigating Economic Shifts: The US-China Financial Dance from Globalization to Deglobalization

Executive Summary

This article explores the evolving economic relationship between the United States and China, highlighting key shifts from globalization to deglobalization. It examines:

1. Globalization Era (1990-2015): The strategic use of intellectual property by the US to attract foreign investments and maintain favorable interest rates, alongside China’s role in accumulating US Treasury bonds.
2. Stabilization of Major World Economies (2015-2019): Characterized by the US maintaining low interest rates to support post-crisis recovery, with China’s continued investment in US debt playing a crucial role.
3. Global Supply Chains and Economic Destabilization (2020-2023): Analyzes the impact of the COVID-19 pandemic, emphasizing China’s critical role as a major holder of US debt.
4. Trend Towards Deglobalization (Since 2023): Driven by geopolitical tensions and nationalistic policies, the US has focused on strengthening domestic industries and reducing reliance on foreign entities, while China has gradually reduced its holdings of US Treasury bonds, leading to increased market volatility.

Strategic Recommendations

To navigate these challenges effectively, global manufacturers should consider the following strategic recommendations:

1. Diversify Supply Chains: Reduce dependency on any single country or region by establishing multiple sourcing options and investing in local production capabilities. This can mitigate risks associated with geopolitical tensions and supply chain disruptions.
2. Invest in Technology and Automation: Embrace advanced technologies such as AI, machine learning, and automation to improve efficiency, reduce costs, and enhance quality control. Investing in digital transformation can help manufacturers adapt to changing market demands and improve overall competitiveness.
3. Focus on Sustainability and Innovation: Prioritize eco-friendly practices, reduce carbon footprints, and develop innovative products to meet evolving consumer preferences and regulatory requirements. Fostering a culture of continuous improvement and innovation can drive long-term growth and profitability.

These strategic recommendations are crucial for global manufacturers to address the complexities of modern global finance and ensure resilience in the face of shifting economic dynamics.

As the lines of trade are being redrawn, this article also explores the potential impact of China flooding the market with US savings bonds, including immediate market reactions, economic implications, and global impact. It concludes with strategic recommendations for global manufacturers to address these challenges, emphasizing the importance of diversifying supply chains, investing in technology and automation, and focusing on sustainability and innovation.

1990-2015: Globalization – US Sells IP for Interest Rates

The period from 1990 to 2015 was marked by rapid globalization, driven by technological advancements and the liberalization of trade policies. The United States in leveraging its intellectual property (IP), played a pivotal role in this era. By selling IP and technological innovations, the US attracted foreign investments and maintained favorable interest rates¹. This strategy not only bolstered the US economy but also facilitated the spread of American technology and culture worldwide, reinforcing its position as a global leader.

During the globalization era, China began accumulating US Treasury bonds as part of its strategy to manage its foreign exchange reserves and stabilize its currency². This influx of Chinese investment in US debt helped keep US interest rates low, facilitating economic growth and consumer spending. The US benefited from this arrangement as it allowed for cheaper borrowing costs and supported the expansion of American businesses globally.

China’s Growth:

This era also fueled China’s growth significantly. By investing in US Treasury bonds, China was able to stabilize its currency and create a favorable environment for its export-driven economy². The infusion of American IP and technology helped China modernize its industries and enhance productivity, thereby leading to rapid economic growth. China’s GDP growth rate during this period averaged around 9.91% annually².

2015-2019: Stabilization of Major World Economies – “US Hangs on to Low Interest Rate”

From 2015 to 2019, the world saw stabilization of the global order with the US maintaining low interest rates to support economic growth and recovery from the 2008 financial crisis³. This period was characterized by efforts to sustain global cooperation and economic stability. The US Federal Reserve’s policies Which were geared at keeping interest rates low helped stimulate investment and consumer spending, consequently ensuring that the US remained a cornerstone of the global economy³.

The US exercised Quantitative Easing to put a spanner in the works, slowing down Chinese lending to the U.S., and then the prospect and manifestation of trade tariffs from 2016 put things into reverse.

During this period, China’s continued purchase of US Treasury bonds played a crucial role in maintaining low interest rates⁴. The stability provided by these investments helped the US recover from the financial crisis and sustain economic growth. China’s holdings of US debt also underscored the interconnectedness of the global economy, with both nations benefiting from mutual economic stability⁴.

China’s Growth:

China’s economy continued to grow robustly during this period, with GDP growth rates averaging around 6-7% annually⁴. The stability provided by US debt investments allowed China to focus on domestic economic reforms and infrastructure development⁴. Additionally, China’s strategic investments in technology and innovation helped it become more independent from earlier US IP infusion⁴.

2020-2023: COVID Pandemic Impact – “Who’s on First”

The COVID-19 pandemic from 2020 to 2023 brought unprecedented challenges, disrupting economies and societies worldwide. A survey conducted by Ernst & Young in 2022 found that 72% of senior-level supply chain executives reported a negative effect on their supply chains due to the COVID-19 pandemic. The US, like many other nations, grappled with the health crisis and its economic fallout. The pandemic exposed vulnerabilities in global supply chains and highlighted the need for resilient healthcare systems. Amid the chaos, questions arose about leadership and responsibility, with nations struggling to coordinate responses and prioritize public health over economic interests⁵.

The COVID-19 pandemic brought significant economic disruptions, and China’s role as a major holder of US debt became even more critical. The US relied on low interest rates to support economic recovery efforts, and China’s continued investment in US Treasury bonds helped maintain these rates⁶. However, the pandemic also highlighted vulnerabilities in global supply chains and raised questions about the sustainability of such dependencies⁵.

China’s Growth:

Despite the global disruptions, China managed to maintain a relatively stable growth rate, with GDP growth rebounding to 8.45% in 2021⁵. China’s early investments in technology and healthcare infrastructure paid off, allowing it to manage the pandemic’s impact more effectively ⁵. This period underscored China’s growing independence from US technological influence, as it leveraged its own innovations to sustain economic growth⁵.

2023-Present Day: Deglobalization – “Who Owns America?”

Since 2023, the trend towards deglobalization has gained momentum, driven by geopolitical tensions, the pandemic’s aftermath, and a shift towards nationalistic policies⁸. The US has seen a resurgence in domestic manufacturing and a reevaluation of its global dependencies⁷. This era is marked by a focus on “owning America,” with efforts to strengthen local industries and reduce reliance on foreign entities⁹. The shift reflects a broader movement towards self-sufficiency and resilience in the face of global uncertainties.

Since 2023, the trend towards deglobalization has seen China gradually reduce its holdings of US Treasury bonds. This shift reflects broader geopolitical tensions and a move towards nationalistic policies. The reduction in Chinese investment has led to increased volatility in US bond markets and higher interest rates. The US has responded by focusing on strengthening domestic industries and reducing reliance on foreign investments. This era marks a significant shift in economic strategies, with implications for both nations’ financial stability and global economic dynamics.

China’s Growth:

China’s focus has shifted towards self-reliance and domestic consumption, reducing its dependency on US debt. The country’s investments in technology, renewable energy, and infrastructure have fueled its growth, with GDP growth rates stabilizing around 5-6% annually⁷. China’s strategic shift towards innovation and self-sufficiency has positioned it as a formidable economic power, independent of earlier US technological infusion⁷. As of January 2025, China held $760.8 billion in US Treasury securities, down from its peak of $1.316 trillion in November 2013⁸. As of 2025, foreign investors held $8.5 trillion of US debt, which constitutes about one-third of the total US government debt⁹.

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Officual Chinese Holdings of US Treasury Bonds

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China’s Reduction of U.S. Treasury Holdings: A Potential Risk¹²

The economic relationship between China and the United States, often referred to as “Chi-merica,” thrived from 2000 to 2015. During this period, Americans purchased affordable Chinese goods, and China invested a portion of its trade surplus in U.S. Treasury bonds. However, the Great Financial Crisis and subsequent Quantitative Easing disrupted this dynamic, leading to a slowdown in Chinese lending to the U.S. The introduction of trade tariffs from 2016 further reversed this trend.

Over the past decade, official Chinese holdings of U.S. Treasuries have significantly declined, with the trend accelerating during the COVID-19 crisis. This shift reflects growing economic and political differences between the two nations. The current U.S. administration’s approach to international relations may further discourage foreign investment in U.S. Treasury bonds. Consequently, the likelihood of disruptions in the Treasury bond market could increase. It is crucial to monitor frequent and large bond auctions for any indications of waning demand.

US Savings Bonds Holdings History:

• US Holdings: Increased from $1,000 billion in 2010 to $2,000 billion in 2025¹⁴.
• China Holdings: Peaked at $1,316 billion in 2013, then gradually decreased to $760 billion in 2025¹³.
• Non-US Holdings: Increased from $5,000 billion in 2010 to $7,000 billion in 2025¹⁵.

Top Five Non-US Countries Holding US Treasury Bonds (2024):

1. Japan: $1.1 trillion¹⁵
2. China: $760.8 billion¹⁴
3. United Kingdom: $650 billion¹³
4. Belgium: $330 billion¹³
5. Luxembourg: $290 billion¹⁴

Key Statistics Summary

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Impact to External Strategic Risks on GDP and US Debt

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Note: US GDP Shrank in Q1 2025 by 0.3%

According to Hoisington Investment Company:

Economic output declines when a factor of production (land, labor, capital technology) is overused. In 2024 every new dollar of government debt produced 80c GDP, down from about $3.15 in 1981.

On top of that Reinhart, Reinhart and Rogoff found that when gross government debt exceeds 90% of GDP an economy loses 1/3 of the trend rate of growth. In 2024 the debt ratio was 35% higher than RRR’s impact point. As a result, real per capital GDP grew 1.3% in the last 20 years, down slightly more than 40% below the long-term rate of growth of 2.3%.

The changes in GDP for the US and China have several significant implications:

United States

1. Economic Recovery and Stability: The US GDP growth rates show a recovery from the sharp decline in 2020 due to the COVID-19 pandemic. The steady growth from 2021 onwards indicates economic stabilization and resilience.
2. Inflation and Monetary Policy: Moderate growth rates suggest that inflation might be under control, allowing the Federal Reserve to maintain or adjust interest rates to support economic stability²¹.
3. Employment and Investment: Consistent growth can lead to increased employment opportunities and higher levels of investment, boosting consumer confidence and spending²¹.

China

1. Economic Transition: China’s GDP growth rates reflect its transition from an export-led economy to one focused on high-tech industries and domestic consumption²². This shift aims to sustain long-term growth despite rising labor costs.
2. Global Influence: Strong growth rates enhance China’s influence in global markets, potentially leading to increased foreign investments and stronger trade relationships²².
3. Policy Adjustments: The projected slowdown in growth rates from 2025 onwards may prompt policy adjustments to address structural imbalances and stimulate innovation²².

Global Implications

1. Trade Relations: The economic performance of the US and China significantly impacts global trade dynamics. Stable growth in both countries can foster healthier trade relations and reduce tensions²³.
2. Investment Flows: Investors may seek opportunities in both economies, influencing global capital flows and financial markets²³.
3. Economic Policies: The GDP trends can guide international economic policies, promoting cooperation and addressing global challenges like inflation and trade imbalances²¹.

These implications highlight the interconnected nature of global economies and the importance of strategic policy decisions to sustain growth and stability. If you have any specific areas you’d like to explore further, let me know!

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Bloomberg Crystal Ball on who will win the GDP Race

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Potential Impact of China Flooding the Market with US Savings Bonds

If China decided to flood the market by selling a significant portion of its US Treasury bonds, it would have several profound impacts on both the US and global economies:

Immediate Market Reaction

1. Bond Prices Decline: The sudden influx of US Treasury bonds on the market would lead to a sharp decline in bond prices due to increased supply.
2. Interest Rates Rise: As bond prices fall, yields (interest rates) would rise. Higher interest rates would increase borrowing costs for the US government, businesses, and consumers.

Economic Implications

1. Increased Borrowing Costs: Higher interest rates would make it more expensive for the US government to finance its debt, potentially leading to higher taxes or reduced public spending.
2. Stock Market Volatility: Rising interest rates could negatively impact the stock market, as higher borrowing costs and reduced consumer spending would affect corporate profits.
3. Currency Fluctuations: The US dollar might depreciate against other currencies, including the Chinese yuan, as investors seek safer assets. This depreciation could make US exports more competitive but also increase the cost of imports.

Global Impact

1. Financial Market Turbulence: The global financial markets would likely experience significant volatility, as investors react to the uncertainty and potential shifts in economic power.
2. Geopolitical Tensions: Such a move could exacerbate geopolitical tensions between the US and China, affecting trade relations and diplomatic interactions.

Long-term Consequences

1. Shift in Investment Strategies: Investors might seek alternative safe-haven assets, such as gold or other sovereign bonds, leading to a reallocation of global capital.
2. Economic Policy Adjustments: The US Federal Reserve might need to implement measures to stabilize the economy, such as adjusting interest rates or engaging in quantitative easing.

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Hypothetical Market and Economic Reactions Over Time if China Flooded the Market with US Savings Bonds

The hypothetical graph shows the interaction of the specified indices over time if China were to flood the market with US Savings Bonds.

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Hypothetical Economic Impact Graph Explanation:

• Bond Prices Decline: Sharp decline due to increased supply.
• Interest Rates Rise: Increase as bond prices fall.
• Increased Borrowing Costs: Higher interest rates lead to increased costs.
• Stock Market Volatility: Negative impact due to higher borrowing costs and reduced consumer spending.
• Currency Fluctuations: Depreciation of the US dollar against other currencies.
• Financial Market Turbulence: Significant volatility in global financial markets.
• Geopolitical Tensions: Exacerbation of tensions affecting trade relations.
• Shift in Investment Strategies: Reallocation of global capital to safer assets.
• Economic Policy Adjustments: Measures by the US Federal Reserve to stabilize the economy.

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Hypothetical Economic Impact Graph Explantion with Recommendations

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Hypothetical Economic Impact Graph Explanation

Risks

• Geopolitical Tensions: Trade conflicts, market volatility
• Economic Uncertainty: Interest rate fluctuations, currency fluctuations
• Supply Chain Disruptions: COVID-19 pandemic, deglobalization trends

Opportunities

• Technological Advancements: AI and automation, digital transformation
• Market Growth: Shifting growth pools, sustainability initiatives
• Strategic Resilience: Diversified supply chains, agile planning

Strategic Responses

• Risk Mitigation: Scenario planning, resource allocation
• Investment in Technology: AI and machine learning, automation
• Focus on Sustainability: Eco-friendly practices, innovation
• Strategic Resilience: Diversification, agility

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Impact of Consumer Sentiment

Partisan Perceptions and Sentiment Measurement: Key Facts and Conclusions for Executives

Date: April 11, 2025
Author: Joanne Hsu, PhD, Director
Source: The University of Michigan, 2025. All rights reserved.

Key Facts:

1. Historical Context: Partisan differences in consumer attitudes and expectations have been documented since the Reagan administration. Consumers affiliated with the political party in the White House tend to have higher levels of sentiment and more favorable expectations than those whose party is not.
2. Behavioral Patterns: These differences extend beyond attitudes to consumer spending and entrepreneurship, with patterns flipping for Democrats and Republicans when the White House changes party.
3. Survey Frequency: Surveys of Consumers increased the frequency of political affiliation questions to monthly starting in February 2017.

Conclusions:

1. Validity of Survey Measurements: Despite political polarization, survey measurements remain valid. Independents consistently express views that reflect national estimates.
2. Parallel Trends: Trends in sentiment and expectations for each political affiliation group move in parallel over time under both Republican and Democratic presidents.
3. Post-2025 Election: Following the 2025 presidential election, sentiment and expectations have moved similarly across political affiliations.
4. Representative Sample: The Surveys of Consumers continue to reach a nationally representative sample of Americans across the political spectrum.

These insights are crucial for executives to understand the impact of political affiliation on consumer behavior and sentiment, ensuring informed strategic decisions.

Top 3 Actions for Global Manufacturers to Address These Challenges

1. Diversify Supply Chains: Manufacturers should diversify their supply chains to reduce dependency on any single country or region. This can mitigate risks associated with geopolitical tensions and supply chain disruptions¹⁰. By establishing multiple sourcing options and investing in local production capabilities, manufacturers can enhance resilience and ensure continuity in operations.
2. Invest in Technology and Automation: Embracing advanced technologies such as AI, machine learning, and automation can significantly improve efficiency and reduce costs⁹. These technologies can streamline production processes, enhance quality control, and provide predictive maintenance capabilities. Investing in digital transformation can also help manufacturers adapt to changing market demands and improve overall competitiveness.
3. Focus on Sustainability and Innovation: Manufacturers should prioritize sustainability and innovation to meet evolving consumer preferences and regulatory requirements¹⁰. Implementing eco-friendly practices, reducing carbon footprints, and developing innovative products can attract environmentally conscious consumers and open new market opportunities. Additionally, fostering a culture of continuous improvement and innovation can drive long-term growth and profitability.

Conclusion

The evolving economic relationship between the United States and China, transitioning from globalization to deglobalization, underscores the complexities of modern global finance. As geopolitical tensions rise and nationalistic policies take hold, the reduction in Chinese holdings of U.S. Treasury bonds highlights the fragility of international economic interdependence.

The potential for market disruptions necessitates vigilant monitoring and strategic adjustments. Global manufacturers (including Retailers dependent on overseas manufacturers) must adapt by diversifying supply chains, investing in technology and automation, and prioritizing sustainability and innovation to navigate these challenges effectively.

The future of global economic stability hinges on proactive and resilient strategies in response to these shifting dynamics.

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#GlobalizationtoDeglobalization #Deglobalization #USTreasuryBonds #GeopolitcalTension #NationalisticPolicies #COVID-19EconomicImpact #SupplyCainDiversification #TechnologyandAutomation #Sustainability #GlobalFinancialStability #EconomicInterdependence #MarketDisruptions #StrategicRecommendations

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