Where Are the Adults in the White House?
Trump’s proposal to limit U.S. investment into mainland markets pushes the trade war to a new level of folly. It’s also bound to fail.
No more monkeys jumping on the bed!
Photographer: Eamonn M. McCormack/Getty Images EuropeHas the U.S. gone mad? At least a dozen sources – from hedge-fund managers in New York to equity salespeople in Hong Kong and private bankers in Shanghai – found themselves asking this question after Bloomberg News reported Friday that the Trump administration is discussing ways to limit U.S. investment into China.
The possible measures proposed are sweeping, including a halt to China Inc. listings in New York and limiting how much U.S. government pension funds can invest in mainland markets. Within 24 hours, a Treasury official said there aren’t any current plans to ban Chinese companies from U.S. exchanges – “at this time.”
The first question is whether the White House has the legal power to make such changes. A quick answer appears to be no.
The Treasury’s Office of Foreign Assets Control does have the ability to block any individual or firm that violates U.S. sanctions. However, the department must have concrete evidence that such infractions occurred. “The U.S. does not have the authority to simply block transactions with China. The bar for action is very high,” UBS Group AG wrote in a weekend note to clients. To pull this off, the Trump administration will have to go through Congress first, the bank said.
Even if it’s just bluster, the damage is already done. China’s financial elites now see the U.S. shifting the front of its trade war to financial markets – in part because its campaigns on the tariff and technology fronts haven’t been going so well. One reason is that China is still a heavily managed economy. Whereas President Donald Trump has to wait for higher tariffs to seep into consumers’ budgets before he can steer their behaviors, Beijing can simply tell its state-owned enterprises, such as Cofco Corp., to stop buying U.S. soybeans. That snaps the backbone of American farmers – Trump’s key supporters – a lot more quickly than any pain Trump can inflict in reverse. As for blocking semiconductor exports to China, that hasn’t gone according to plan either. Anticipating supply shortages, Huawei Technologies Co. had been stockpiling materials for months, and is now making its own chips.