Understanding US Debt and Its Major Lenders

Introduction

Since the 1970s, the United States has consistently imported more goods and services than it exports, resulting in a trade deficit. This means more dollars leave the US to pay for foreign products than come in from selling American goods abroad.

What Happens to the Dollars Sent Abroad?

Countries that sell goods and services to the US accumulate large amounts of US dollars. While some of these dollars are used for international trade (such as buying oil), much of the surplus is invested back into the US economy.

How Foreign Investment in US Debt Works

Foreign countries and investors often use their surplus dollars to buy US Treasury securities ( bonds, notes, and bills). By purchasing these, they are effectively lending money to the US government. In return, the US pays interest on these securities, funded by tax revenues collected from individuals and businesses.

Why Do Countries Buy US Debt?

Countries buy US Treasuries for several reasons:

• To safely invest their trade surpluses
• To stabilize their own currencies
• To maintain liquidity in global markets

US Treasuries are considered one of the safest investments in the world due to the size and stability of the US economy.

The US as the World’s Largest Debtor

As a result of ongoing borrowing, the United States is the largest debtor nation in the world, with a national debt exceeding $30 trillion as of 2025.

Major Foreign Holders of US Debt

The largest foreign holders of US Treasury securities are:

• Japan: Over $1.1 trillion
• United Kingdom: Approximately $809 billion
• China: Approximately $756 billion
• India: $242 billion (12th largest holder)

Japan and China are the two biggest foreign lenders to the US.

Impact of US Debt

The need to pay interest on the national debt affects the federal budget, influencing tax policy and government spending. High levels of debt can also impact the country’s credit rating and borrowing costs.

Conclusion

The US national debt is closely tied to its trade deficit and the willingness of foreign countries to invest in US Treasury securities. Understanding this relationship helps explain why the US can sustain large deficits and what risks and responsibilities come with being the world’s largest debtor.