Disclaimer: I am not a politician, nor (especially) an economist. I couldn’t tell you a GDP from a trade imbalance from a kumquat. But I do know war, and war ain’t pretty.
But what happens during, or after a war, with respect to belligerent nations’ credits and debts to each other? My examples in mind:
Nazi Germany may have held public and private debt that the US government (or private companies) were obliged to honor. At the outset of hostilities, did Uncle Sam simply wag a middle finger at Hitler and nullify all of those debts? Did private companies basically recieve a ‘free income’ by not having to honor those debts to a belligerent Germany?
IIRC, the Chinese hold a tremendous amount of US debt (lets’ say for sake of argument $1 trillion). Should Tomahawk and Hsiung Feng cruise missiles start being exchanged, does each side just simply get to abrogate that debt?
What are the pros and cons to this? Would wartime cancellation of debt be seen as a massive windfall of income to each side? Obviously trade would be disrupted during hostilities Sorry Timmy, no iPhone for you this year. and at the conclusion, in a crushing defeat, the victors could/would impose sanctions and reparations. But what if it’s a near-parity conclusion where it’s nota lopsided defeat and both sides ‘take equal lumps’?
In general, trading with the enemy is prohibited, and “trading” is fairly broadly understood.
So, it’s September 1939 and I’m a UK resident who has borrowed money from a German resident, or from the German government - it doesn’t greatly matter which. UK law will forbid me from sending the quarterly interest payments and, in due course, the repayment of principal to Germany. But it doesn’t mean I get off scot-free; there’s a UK government official to whom I make the payments (the “Receiver of Enemy Property”, IIRC). Paying him will (as a matter of UK law) be a complete discharge of my obligation to pay interest and repay principal. After the war is over the question of whether my German creditor can recover what is due to him from the UK government is something that will get sorted out in the final settlement.
So, no, the debt isn’t nullified. If there’s a lot of debt owed to enemy countries, then my government will definitely not want to nullify that debt; they’ll want to step into the creditor’s shoes and collect it themselves; if nothing else, it will help to finance the war. Depending on the outcome of the war they may or may not end up paying out to the original creditors.
If the debt is government debt owed on bonds issued by the UK government (or UK financial institutions,say), the Germany bondholders would quite like to sell those bonds to a neutral - a resident of Sweden, maybe. The Swedish bondholder would then “I’m not the enemy! You can pay me!” Whether there were measures in place to prevent this happening, so that bonds held by enemy bondholders were somehow identified and permanently sequestrated no matter who later acquired them, and therefore nobody would buy them, I do not know. My guess is that most German holders of UK bonds, seeing the way the wind was blowing, would have sold them before the war broke out in September 1939, so the question of whether they could sell them afterwards wouldn’t arise.
I’d like to add that this is a more recent phenomenon than one might think. During the Crimean War (the one in the 1850s, not the one of 2014), when Russia was at war with the UK and France, Russia was famously able to issue governments bonds (the proceeds of which were used to fund its military) on the London stock exchange.
One interesting fact is that German patents and trademarks were cancelled in the US during the war. That is why generic ASA tablets can be labelled Aspirin in the US, but not in Canada.
Related question could a nation say they nullifying any debts their citizens have to a belligerent nation in order to compensate losses it sustained during a war against said belligerent?
I presume any such issues would be addressed in a peace treaty, which is where the question of reparations usually comes up. Absent any such rules, why wouldn’t the legal/financial situation revert to the way it had been before hostilities?
Nullifying the debts would confer arbitrary benefits on individual citizens who might not have suffer any losses as a result of the war and may even profit from it. If the government is minded to do anything it won’t nullify the debts; it will claim them for itself so that it, rather than enemy aliens, gets to collect and keep them.