U.S.-China Relations Still in Deep Freeze; New Controversy Looms

by Greg Valliere, AGF Management Ltd.

OBSCURED BY THE DIN over the Omicron variant and U.S. fiscal dysfunction is a growing dispute between Washington and Beijing over a controversial amendment in the pending defense spending bill. China is threatening aggressive retaliation.

AT THE CENTER OF THIS DISPUTE is Chuck Schumer’s “U.S. Innovation and Competition Act,” or USICA, which would spend $250 billion to aid U.S. manufacturers that compete with China. Politico and others have cited warnings from trade experts that China could respond by deliberately disrupting imports of imported parts supplies for U.S. manufacturers. and by curbing Chinese purchases of U.S. exports.

SCHUMER’S PROPOSAL COMBINES SEVERAL OTHER amendments from both political parties into a 2,276-page bill designed to preserve a competitive technological edge over China through the injection of tens of billions of taxpayer dollars for various initiatives, including U.S. semiconductor manufacturing and “buy American” requirements for federally funded infrastructure projects, Politico reports.

THIS IS A TOUGH BILL, DESIGNED TO TARGET CHINESE PRACTICES that members of Congress believe are directly hurting the U.S., including state-directed intellectual property theft, forced technology transfers and malicious cyberattacks on U.S. government and corporate entities.

THE BILL also would ban government agency purchases of Chinese manufactured drones as well as prohibiting the use of government hardware to download TikTok. Experts on U.S.-China trade believe retaliation from Beijing could include a halt in the shipment of parts used to manufacture electric vehicles.

FINAL PASSAGE OF THE $780 BILLION DEFENSE SPENDING BILL is probably a week away, at best. Republicans are angry that dozens of amendments have been added in recent weeks, without floor debate — including potential new sanctions against Russia if Moscow advances in Ukraine.

OUR BOTTOM LINE is that something like USICA will eventually pass — if not before Christmas, then later in the winter. It has bipartisan support, and talking tough on China is a given in both parties as the 2022 elections approach.

JOE BIDEN AND XI JINPING had a constructive talk earlier this month, but there was no agreement on issues like this. We don’t anticipate a tariff war, but a further disruption of the supply chain is possible; it may persist well into next year as
China retaliates if the USICA provision is passed.




The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

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), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. 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.

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This post was first published at the AGF Perspectives Blog.

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