Markets like to superimpose the framework of yesterday to handicap the uncertainties of tomorrow. When it comes to trading the reemergence of tensions between the Trump administration and Beijing, they should take note of two major shifts underway this year:
First, as opposed to the halcyon days of 2018 and 2019 when the pressure on China was largely focused on tariffs and technology, there are now well over a dozen measures in the pipeline between the executive branch and the U.S. Congress aimed at China.
Many of these were extensively laid out and handicapped in SGH 5/5/20, “China: U.S. Preparing Retaliatory Measures”, and two of them have already since come to pass, and roiled markets in the process — a forced “delay” engineered by the White House of the federal government pension Thrift Savings Plan equity allocation to China investments in the MSCI All World Index, and the roll-out by U.S. Senator Lindsey Graham of a “COVID-19 Accountability Act” against China.
Second, the market’s assumed correlation in 2018 and 2019 between a strong economy and tariff pressure on China, where President Trump, even in his own words, would use “house money” as it came available to pressure China, no longer exists; if anything, that relationship could now even be reversed.
The White House is, of course, single-mindedly focused on bringing the shattered U.S. economy back to its feet. But the recognition now even by the President himself that the economy may not have its “strong rebound” until the fourth quarter of this year at best is of enormous significance: the lower the odds of riding the economy through the November elections to win a second term, the higher the odds that Trump will press on his “America First” calling card that has been a consistent policy theme since becoming president.
In another sign of worsening relations, the Senate on Wednesday passed a bill that threatens to delist Chinese companies from American stock exchanges unless they submit to U.S. auditing requirements. Some of the biggest Chinese companies have refused to conform to those requirements with little consequence.
"It says to all the companies out there in the world, including, but not limited to China: You want to list on an American exchange, you have to submit an audit, and the SEC has the right to look at that audit, and audit the audit," said Sen. John Kennedy (R-La.) in a floor speech describing the legislation, which he co-sponsored with Sen. Chris Van Hollen (D-Md.).
Only the latest China cut: The bill was the second piece of bipartisan legislation targeting China the Senate passed in two weeks. Last Thursday, the upper chamber passed the Uyghur Human Rights Policy Act of 2020, which would sanction Chinese officials who played a role in the mass detention of Muslims and other minority groups in China’s Xinjiang province.