Donald Trump’s Chinese Stock Snub Could Reignite the Trade War

May 13, 2020 1:37 AM UTC
Trump just diverted billions in federal pension funds from investment in the Chinese stock market. He could provke another trade war.
  • Trump is diverting billions away from the Chinese stock market.
  • The president axed a plan to invest federal pension funds in Chinese stocks.
  • Beijing is sure to bristle at the snub. Could another trade war be next?

President Donald Trump and the U.S. Labor Department are diverting billions of dollars away from the Chinese stock market. On Monday, the White House ordered a board charged with managing federal pension funds to end plans to invest in Chinese stocks.

The move could have massive geopolitical repercussions.

Federal Retirement Thrift Investment Board oversees the Thrift Savings Plan. It’s a pension fund for federal workers, including the U.S. military. TSP manages over $550 billion in assets for federal employees’ retirement plans.

In November, the Thrift Investment Board confirmed plans to change its international equities fund to an index that includes Chinese stocks. This week, Labor Secretary Eugene Scalia warned the changes would place,

billions of dollars in retirement savings in risky companies that pose a threat to U.S. national security.

Now the U.S. is changing course and keeping Chinese stocks out of its pension funds. The Chinese government will undoubtedly perceive this as a symbolic slight, and as a substantive attack on its economic growth by Donald Trump.

Trump Administration Rebuffs Chinese Stocks

Part of the concern stems from worries over a lack of transparency and regulatory scrutiny for Chinese stocks. A former trade adviser to President Trump wrote:

There’s a lot of focus on this issue from a national security standpoint, but the investor protection angle is equally important. China is an international outlier in not permitting U.S. regulators to access the audits of its companies listed on U.S. exchanges, which puts our investors at risk.

But also at issue is the Chinese government’s role in the spread of coronavirus. National Economic Council director Larry Kudlow and National Security Advisor Robert O’Brien wrote to the Labor Secretary on May 11, saying:

Recent events, which the Board could not have anticipated when it affirmed its decision in November 2019 to move forward with adding Chinese-listed equities to the I Fund, have heightened these risks… The Chinese Government concealed critical information from the United States and the rest of the world regarding COVID-19 and exacerbated the ensuing global pandemic.

$2.44 billion would have been invested in Chinese stocks before the changes.

China Could Retaliate for Pension Snub

Beijing is certainly unhappy with the news. Donald Trump has already ramped up the war of words against China in recent days. Trump went so far as to suggest China let coronavirus spread to the U.S. as revenge for the recent trade war.

He also said there’s no question that the Chinese government misled the global community about coronavirus. And he’s threatened to resume the tariff war in retaliation for coronavirus.

That sent the U.S. stock market for a dive on fears of a renewed trade war with China. Benchmarks rallied into the new year pricing in a hard-fought U.S.-China détente on trade.

But Trump’s recent move is politically shrewd. He looks tough on China without going back on the trade agreement. If that provokes China to raise tariffs in retaliation, Trump can also blame them for ending the short-lived truce. Meanwhile, he could strike back by raising U.S. tariffs in response. Let’s hope it doesn’t go that far.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

@thehuli

Markets Contributor for CCN living in Nashville, Tennessee. Bachelor of Business Administration from Belmont University in 2009 (majored in Entrepreneurship). Organized Senator Rand Paul's first and second online fundraisers in 2009. Roving editor for the Independent Voter Network since 2013. Email me | Link up with me on LinkedIn | My Website | My Muck Rack Page | Follow Me on Twitter (followed by: fmr Rep. Ron Paul (R-TX), Sen. Rand Paul (R-KY), fmr NM Gov. Gary Johnson, and Rep. Thomas Massie (R-KY))