Increasing Likelihood of Chinese Debt Crisis

 One of the effects of the new tariffs is that China may default on its heavy debt load. Chinese provinces and businesses owe more than twice what the heavily indebted US federal government owes as a percentage of GDP (105% to 256%). Much of that debt is denominated in dollars, so if they cannot trade with the US, they may not be able to pay it back because they will be unable to obtain the dollars. In this article Reuters reports that a firm in Inner Mongolia has defaulted on $629 million in "off-balance sheet loans." It's unclear whether the current crackdown by the Chinese federal government on provincial debt is related to the Trump tariffs, and it's far from certain that a general credit crisis looms in China. They are moving in that direction, though.

If China defaults, that will cause financial troubles here in the US because China owes much of the money to US lenders--more than $1 trillion according to Investopedia.