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Trump’s China Tech Attack is Bad News For the Stock Market

Last Updated September 23, 2020 2:20 PM
Joseph Young
Last Updated September 23, 2020 2:20 PM
  • The U.S. stock market faces newfound risks after it gains lifeline from positive job data.
  • The Trump administration is looking to carry out reform on Chinese stocks in the U.S. by requiring them to comply with specialized audit regulators.
  • As geopolitical risks mount and U.S.-China relations worsen, equities face trouble ahead.

The U.S. stock market closed with a modest 0.68% gain on Thursday due to optimistic job data. But U.S.-China relations are reaching a boiling point , threatening the market’s momentum.

On August 7, U.S. President Donald Trump issued executive orders to ban both TikTok and WeChat.  

The Trump administration also reportedly plans to require all Chinese stocks to comply with specialized regulators by 2022. 

stock market
The U.S. stock market closed with a modest gain on Thursday. | Source: Yahoo Finance

There is Newfound Risk Against the Stock Market

Throughout the past several months, economists have consistently warned against the intensifying U.S.-China tensions. 

The Federal Reserve has aggressively implemented relaxed market conditions and low-interest rates.

But whether that could prevent geopolitical risks and gloomy economic data from affecting the stock market is uncertain.

Virus infections are still soaring, and the economy is declining. In the near-term, heightened geopolitical risks could have dire implications.

The positive job report, which saw jobless claims fall to March lows , gave the U.S. stock market a lifeline.

Yet, studies show hiring in the U.S. would likely slow down,  as many states struggle to open fully.

Amid an economic recovery, the worsening U.S.-China relationship puts additional pressure on the stock market. 

Some strategists say that the ban on TikTok and WeChat is a decision to give the U.S. leverage.

Video: The U.S. Aggressively Targets Chinese Apps

AxiCorpo’s chief global markets strategist Stephen Innes said the U.S. is likely preparing for new China trade talks. He said:

The executive orders leveled on TikTok, and the scrutiny over WeChat has opened up a most unwelcome can of worms. [This could] be more of a signal than anything else, especially front running the China trade talks.

Whether China sees it in the same light is a different question.

On August 7, the AFP News Agency reported  that China accused the U.S. of “political manipulation.”

The Chinese state media expressed their discomfort  toward the ban on TikTok last week.

This time, as it concerns the nation’s second-biggest tech conglomerate Tencent , China appears to be reacting more fiercely.

When the U.S. ordered China’s Houston consulate to close down, Chinese authorities immediately responded with countermeasures. 

If China responds to the U.S. with measures against American companies, it could trigger a new barrage of conflicts.

The Conflict Could Last Longer This Time Around

The Trump administration has not stopped at banning the two dominant Chinese social media giants.

The government is looking to carry out reform on all Chinese stocks  in the U.S. stock market.

chinese stocks
Edward Lawrence reports Chinese stocks in the U.S. have until January 2022 to comply with new requirements. | Source: Twitter 

The WSJ’s report says that a new plan would require Chinese firms to comply with the Public Accounting Oversight Board.

Public Chinese companies in the U.S. would have to share work papers with specialized audit regulators.

If the companies deny, according to the new plan, they would be delisted from the NYSE and Nasdaq. 

U.S. Treasury Secretary Steven Mnuchin said:

The recommendations outlined in the report will increase investor protection and level the playing field for all companies listed on U.S. exchanges.

After-hours trading data shows the U.S. stock market declined slightly by 0.5%. Investors have been increasingly seeking safety by flocking to bonds in recent weeks.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.