Krugman has this to say about it:
For those not familiar with how financial markets work, US Treasuries are the ultimate safe asset, used as collateral for everything. Even a hint that some Treasuries might not be honored could bring everything to a screeching halt
Musk and Trump are both in the habit of stiffing people they owe money. If markets even suspect that this habit will extend to Treasuries, God help us
Something most people don’t get is that China holding a significant portion of our debt gives them an incentive to protect USD. By defaulting, there is no reason for them not to do everything in their power to destroy USD. This is literally the only meaningful economic tool the US has and he wants to devalue it.