by Greg Valliere, AGF Management Ltd.
LOOKING FOR A THEME: President Trump’s political advisers — who are debating three potential election themes — increasingly view China as their go-to issue this fall.
SOME ADVISERS THINK THE CORONAVIRUS EVENTUALLY could be a plus for the President if the economy bounces back this fall, which theoretically could vindicate Trump’s push to re-open the country. But Trump polls poorly on his handling of the virus, and he may never recover from his dismissive comments in February and his disastrous musing about ingesting disinfectants.
OTHER ADVISERS THINK “OBAMAGATE” could tarnish popular ex-president Barack Obama and former Vice President Joe Biden, but this extremely complicated narrative is not the greatest scandal in U.S. history, as Trump proclaims. Michael Flynn is now portrayed as the victim of an enormous conspiracy; this is a perfectly useful scandal for Fox News, but not enough to impact the election.
SO THIS LEAVES THE OBVIOUS TARGET — CHINA: Public antipathy toward Beijing has surged; even most Democrats agree that China is a villain that should be punished — not just for its apparent deceit over the coronavirus.
IN JUST THE LAST MONTH, China has been caught hacking into U.S. firms that are working on a virus vaccine; China has jailed activists in Hong Kong; and Beijing has sought to re-open the U.S.-China trade deal — an idea that Trump quickly dismissed. It’s unlikely that China will adhere to Phase One of the deal; Phase Two is on life support.
TRUMP WILL MOCK JOE BIDEN for his support for the Trans Pacific Partnership and Biden’s generally benign comments about China — naive, Trump will assert. Biden will hit back at Trump’s praise of Chairman Xi. So during the campaign there will be a competition to see who can be the most anti-China.
THIS RAISES A SERIOUS ISSUE: Just what, exactly, can the U.S. do to retaliate against the Chinese government? Seven options:
1. LAWSUITS: Some states are considering lawsuits against China. Chances of getting even a nickel are very slim.
2. INTEREST PAYMENTS: Some states and individuals are calling on the U.S. government to withhold interest payments on U.S. Treasuries owned by China. That would send a disastrous message to holders of U.S. debt. It won’t happen.
3. TARIFFS: Donald Trump, a self-described “tariff guy,” could slap new tariffs on China. Can’t rule this out.
4. DE-LISTING: Congress could act on the “Equitable Act,” a bill introduced last year that has strong bipartisan support. It would put in motion a process whereby Chinese firms could get de-listed on U.S. stock exchanges if they don’t meet certain standards of transparency. Powerful Sen. Marco Rubio could add this to the next stimulus bill. Trump said on Fox News yesterday that he’s considering the measure, although he conceded that affected firms could simply list on other global exchanges.
5. INSTRUCTING THE U.S. THRIFT SAVINGS PLAN, the federal retirement fund, to sell its roughly $4 billion in Chinese investments. This has support in Congress.
6. TARGETING SUPPLY LINES: Congress is increasingly agitated by the heavy U.S. reliance on Chinese shipments of medical supplies, pharmaceuticals and other goods. Some type of legislation to curb this reliance — or reward U.S. firms for bringing the manufacturing back to America — has widespread support on Capitol Hill.
7. SOMETHING SYMBOLICALLY RADICAL: Trump told Fox that “we could cut off the whole relationship.” That would alarm most U.S. businesses and would be poorly received on Wall Street. But something splashy — like recalling the U.S. ambassador — isn’t out of the question. For now, Trump says he has no interest in talking with Xi.
BOTTOM LINE: We’re in a Deep Freeze with China — and so is Western Europe — and it may get worse before the election. Watch Rubio on this issue — he’s thinking about 2024 — and he may continue to bash China as he launches another presidential bid.
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This post was first published at the AGF Perspectives Blog.
