Facing imminent electoral defeat, the Donald Trump administration in Washington has embarked upon a scorched-earth retreat – leaving trade-war devastation in its wake across the Pacific.
Reports from the US overnight state that Ant Group – about to press the button on what may just be the biggest IPO in history – is now in the administration’s gunsights.
And that follows reports that State Department officials have been touring Europe, urging allies to sever all connections to cloud services offered by Chinese tech flagship Huawei, the administration’s public enemy number one.
It’s a last-minute offensive by the late-term Trump administration. It smacks of both political desperation and economic nihilism.
As Reuters reported, Trump’s yes-man of a Secretary of State, Mike Pompeo, has been seeking to add Ant to the Trump administration’s trade blacklist.
This makes China’s dominant mobile payments company Trump’s new proxy in his attempt to kneecap Xi Jinping’s economy. And that means Chinese entrepreneurialism’s poster boy, Jack Ma, can pretty much expect Ant to find itself on the dreaded “Entity List.”
But will it work?
Tariffs on almost US$500 billion of goods did not shove China over the brink. Nor did they compel President Xi to fly, head hung and cap hat in hand, to Washington’s negotiating table.
And Trump’s all-out assault on Huawei Technologies did not force Beijing to bend a knee. Washington has already opened fire on Huawei’s 5G equipment exports and deployed chip sanctions.
Now, the latest front in this sector of the trade war has Pompeo’s men lobbying European firms to stop using Huawei services in the cloud computing realm.
But it is the reported assault on Ant that suggests Trump wants to disrupt what looks set to be history’s biggest IPO, an upcoming dual listing in Shanghai and Hong Kong worth perhaps $35 billion. To what effect?
Sure, Pompeo, Peter Navarro and the other China hardliners who have Trump’s ear are happy. Their plan might even succeed in deterring some US investors from partaking in the Ant IPO that has bypassed the NYSE.
But longer-term damage to America’s capitalist bona fides will matter more. So might the ways in which China might retaliate, catalyzing an entirely new world of trade-war pain.
Action, reaction
The World Trade Organization is in its own Trumpian harm’s way. Last month, the WTO ruled Trump’s China tariffs breached global trading rules. Trump, in a vaguely ominous tone, said “we’ll have to do something about the WTO because they’ve let China get away with murder.”
But at the end of his four-year term, it is far from clear whether Trump has gamed out all the ways Xi’s government could put corporate America over a barrel.
Xi could devalue the yuan to gain an instant trade advantage. He could tear up the “Phase One” trade deal guaranteeing billions in purchases from farmers in states Trump must win next month. He could even ban US agricultural and beef products.
China could, as Asia Times has explored in the past, simply dump huge blocks of US Treasury securities. In 2008, amid the Lehman Brothers crisis, then-Secretary of State Hillary Clinton mused about the leverage the $1.1 trillion of US debt China holds gives it over Washington. She asked: “How do you deal toughly with your banker?”
Sure, the chaos from dumping US debt would boomerang back on China. Higher US interest rates would hurt the demand for mainland goods. The US would feel even greater pain, though, as global markets reassess its $27 trillion debt burden.
Xi could slap giant taxes on retail giant Walmart or ban sales of American cars and trucks. He could announce an Airbus-only policy in Asia’s biggest economy, devastating Boeing and other US aerospace giants.
China could say no more exports of rare-earth materials to Silicon Valley, making it near impossible to keep batteries, memory chips and smartphones affordable.
China could call Elon Musk tomorrow and tell him to close his ginormous mainland Tesla factory. Similar calls could be directed at Apple, Coca-Cola, Goldman Sachs, McDonald’s, Nike, Starbucks and a who’s who of multinationals serving up Americana for profit.
Hollywood, streaming services and record labels could be told to air their content elsewhere.
Xi also could halt all production of Trump family merchandise and revoke all those Chinese patents Trump’s daughter Ivanka mysteriously was awarded these last few years. Beijing could incentivize mainland students to transfer out of Harvard, the University of Chicago and New York University and overpay for a western education elsewhere.
It could halt the yuan-rich human wave of Chinese tourists once Covid-19 eases – a weapon Beijing has already used against South Korea, after the latter gave its US allies the green light to deploy a missile defense system that irked China on its soil.
Last-minute offensive
But right now, it is Trump who – watching his chances of re-election go up in smoke – is doing all the pushing.
Trump is raising the stakes anew – and raising the odds of Beijing retaliating – by further tightening the noose on Huawei.
US officials have been touring the EU, urging Europeans to drop Huawei as a cloud platform supplier, citing security concerns, according to Reuters. US Under Secretary of State Keith Krach met European lawmakers and also executives from firms including Deutsche Telekom and Spanish telecom carrier MasMovil.
That made the Huawei intervention diplomatically extraordinary, de facto exerting extraterritoriality not just by talking to governments, but also directly to operators.
Trump’s nascent assault on Ant looks less sure-footed. Though its Alipay app isn’t currently unavailable for American users, Trump’s team apparently fears that Xi’s government might access users’ banking data.
So, unlike the assault on Huawei Technologies, Trump’s maneuver against Ant looks largely symbolic. US investors, after all, will still be able to take stakes in Ant and other Chinese fintech outfits if they see promise.
But be careful with this one, Mr President.
What’s to keep Xi from barring US investment banks from betting on IPOs in Shanghai, Shenzhen or Hong Kong? It’s not like there’s insufficient investment demand or capital in the greater China region already.
As Xi said during his big October 14 Shenzhen speech: “We are forming a new development pattern with the domestic economy cycle playing a leading role.”
Before long, the Greater Bay Area project that is linking nine regional economies in southern China is sure to have the outside world looking in at the coming bull market in wealth creation.
And there’s yet another way Trump’s Ant ploy might backfire. US giants Mastercard, Visa and others have been cozying up to Chinese payment companies, in part to avoid being shut out of the most populous nation.
Those efforts could be naught if China retaliates against Trump’s own retaliatory tantrums.
Thankfully, Trump has been a trade-war president rather than a war-war president. Even so, his “wag-the-dog” moment has the potential to cause widespread carnage.
China and corporate America alike may take solace in multiple political signals predicting a Joe Biden White House come January. Biden could put an end to this scorched-earth strategy the Trumpian White House and State Department seem to be employing.
But even if Trump is sent packing, the fires he left will still be smoldering for a while to come.
And the damage to America’s standing as a stable, trusted power is likely to be more long-lasting than any slow-down of Ant’s global march.