by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
May 1, 2020
THE VILLAIN: The verdict is in, from Republicans, Democrats, Europe and Australia: China concealed the severity of the coronavirus and continues today to deceive the world about the pandemic. China has become an international pariah.
WE HAVE WRITTEN FREQUENTLY about the desire to punish China, and retribution now is on the table, as both parties in Washington openly debate options. President Trump has a potent campaign issue, as his allies weigh legal options against Beijing.
BEFORE WE LOOK AT RETRIBUTION, we’ll state what is increasingly obvious: relations between the U.S. and China are headed for a deep freeze, with no progress likely on a Phase Two of trade talks. We’re not even sure there’s compliance with Phase One, as more sanctions lurk.
ONE OTHER CRUCIAL POINT: The China-bashing will not be exclusively Trump’s crusade. There’s deep antipathy toward China among many Democrats, from Chuck Schumer to Elizabeth Warren. There’s anger in Western Europe, where Chinese aid has been viewed as disingenuous. And there’s a desire in Australia to examine the
virus labs in Wuhan.
YET THE CHINESE COMMUNIST PARTY has been tone deaf, resuming its crackdown in Hong Kong. A scathing editorial in this morning’s Washington Post notes the dictatorship’s stonewalling, disinformation, and attempts to intimidate global critics. This is a prescription for retribution, and Trump will lead the way.
THE UNLIKELY OPTIONS: We understand the desire to make China pay trillions of dollars to compensate victims, but we doubt that pending lawsuits will succeed. It’s unlikely that any plaintiff will get a dime because that would require stripping China of its sovereign immunity. Another option — refusing to make Treasury bond interest payments to China — would set a deeply troubling precedent for fixed income investors.
TWO LIKELY OPTIONS: First, Trump famously declares that he’s a “tariff guy,” and you can be certain that he is considering crippling new tariffs against Beijing, which would guarantee retaliation and a new trade war that probably would hurt China more than the U.S.
THE MOST LIKELY OPTION — SUPPLY LINES: One of the major lessons learned in the West as the virus raged is that supplies from China — including medical products and pharmaceuticals — are not guaranteed.
CONGRESS IS LIKELY TO PASS CURBS on U.S. reliance on Chinese supply lines, while enacting incentives to U.S. firms that manufacture here, not abroad. Trump and Commerce Secretary Wilbur Ross have called for returning manufacturing to the U.S., and they may get their wish.
WHO’S THE TOUGHEST ON CHINA? That will be a hot topic as the presidential campaign heats up. Joe Biden is running a TV ad that chides Trump for his warm statements about Chairman Xi, but Trump will hit back hard at Biden’s benign views of China — as well as business dealings Biden and his son have enjoyed with Beijing.
BOTTOM LINE: We’re headed for a deep freeze in relations with China. Lawsuits will be a publicity stunt, unlikely to succeed. But new tariffs and a Western aversion to Chinese supply lines will be a big deal that will impose an economic price on
Beijing, which is facing a manufacturing slump — and, perhaps, a restive population
that has been lied to, like everyone else.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.
This post was first published at the AGF Perspectives Blog.
