Defense Secretary Lloyd Austin told lawmakers on Thursday a debt default could have a “substantial risk” to the U.S.’ global reputation and present an opportunity for China to exploit the situation.

“Well, certainly, it would impact our reputation worldwide. We are known for being very dependable, paying our bills on time and a source of stability globally,” Austin said during a Senate Appropriations Defense Subcommittee (SAC-D) hearing. “There’s just a number of things that we’re working with allies and partners on that would come into question as to whether or not we’d be able to execute programs.”

Secretary of Defense Lloyd J. Austin III, Michael J. McCord, Under Secretary of Defense (Comptroller) and Chairman of the Joint Chiefs of Staff Gen. Mark Milley provide testimony at a Senate Appropriations Subcommittee on Defense hearing on the fiscal 2024 budget request for the Department of Defense, Dirksen Senate Office Building in Washington, D.C., May 11, 2023. (DoD photo by Chad J. McNeeley)

Austin also specifically cited an inability to effectively pay troops and civilians at the Pentagon if the U.S. were to default on its debt.

“What it would mean realistically for us is we won’t, in some cases, be able to pay our troops with any degree of predictability. And that predictability is really, really important for us. But this would have a real impact on the pockets of our troops and our civilians,” Austin said. “We won’t be able to pay people like we should. And I think that’s something that China and everybody else can exploit.”

The Pentagon’s perspective on the default impact arrives as negotiations to address the debt ceiling are ongoing, with Treasury Secretary Janet Yellen previously projecting the U.S. could reach that mark as early as June 1.

“Of course, all bets are off if we don’t reach a bipartisan agreement on the debt soon. We have got to deal with the debt in a responsible and common sense way. I am hopeful that bipartisan talks can get going in earnest and that cooler heads will prevail before we come to a default,” Sen. Jon Tester (D-Mont.), the SAC-D chair, said during Thursday’s hearing. “The risk of a government default is real. The risk of a government shutdown is real. The risk of a long-term CR is real. None of which are good, by the way.”

Sen. Jack Reed (D-R.I.), who also chairs the Senate Armed Services Committee, asked Austin on Thursday about his perspective on how competition with China would factor into a potential debt default scenario.

‘Given the disposition of China, they would like to exploit every opportunity. And this would present them a huge opportunity to provide disinformation to American citizens to confuse them and also, in the world community as you point out, to suddenly and miraculously look like the stable adult in the room,” Reed said. “This could be one of the greatest strategic errors vis-à-vis China in history.”

Austin responded that Reed’s characterization is “an accurate statement.”

The House in late April narrowly passed a Republican proposal to raise the debt limit by $1.5 trillion, while the bill contains a provision to roll back government spending to FY ‘22 levels.

The bill does not explicitly exempt defense from potential reductions to meet that spending cap, while Republican leaders have previously downplayed the potential for billions of dollars in defense spending cuts as part of such a plan (Defense Daily, Jan. 10).

“There are some who advocate for keeping all government spending at fiscal year ‘22 levels. In light of China’s continued military aggression, that sounds plain irresponsible to me. But a majority in the other chamber proposes that,” Tester said on Thursday.

The House Armed Services has also postponed its consideration of the fiscal year 2024 National Defense Authorization Act (NDAA), with lawmakers citing the ongoing debt limit debate as the reason for the delay (Defense Daily, May 10).