Washington Preparing to Throw the Kitchen Sink at China

Dear emerging markets fund manager: If you think the trade war is ending this year, I want my money back.

China is returning to its subsidy playbook and plans on subsidizing companies hit by tariffs. The latest recipient is tech companies, according to an article in the South China Morning Post on Friday.

State subsidies to favored industries were a key issue in trade negotiations. China has no interest in rolling them back. They’re not even signaling a willingness to try. Any Memorial Day happy talk tweets by Trump over the weekend should be glossed over and ignored. We are in a “no deal” situation now.

What makes it worse is the fact that Washington is throwing everything plus the kitchen sink at Beijing.

Here’s a list of anti-China measures coming from Democrats and Republicans. Some of them are old, but are being resuscitated as the trade war heats up.

• Expanding the list of Chinese companies on the Department of Commerce’s Entity List to include five companies manufacturing video surveillance equipment. Huawei was added May 15th.
• A bipartisan bill (H.R. 2483) in Congress to sanction Chinese producers of Fentanyl.
• A Department of Commerce proposal on May 23 seeks to impose tariffs on countries that undervalue their currencies.
• China hawk Marco Rubio is reportedly going to reintroduce 2017 legislation (S. 659) to seize assets of anyone involved in “actions or policies that threaten the peace, security or stability” of contested areas of the South China Sea.

“The U.S. strategy is intended to signal to allies and multinational corporates that ‘it’s on’,” says Brian McCarthy, chief strategist for Macrolens in Stamford, Conn.  “The message to allies in Europe and Asia is that – like it or not – it’s time to pick a side.  And to corporates with supply chain vulnerabilities in China – like it or not – it’s time to move.”

Besides bills and threats of ending the Treasury Department’s longstanding position that China is not manipulating its currency, the U.S. Trade Representative is going over the legalities of slapping 25% tariffs on another $300 billion of Chinese imports.

Source: Forbes