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TOKYO – Americans wondering where Jack Ma disappeared to might soon find Alibaba’s stock has gone missing, too.
Keen to whack China one more time on his way out the door, US President Donald Trump is threatening to blacklist Alibaba Group and Tencent.
For Alibaba, which trades on the New York Stock Exchange, that would mean being delisted from a bourse it’s called home since 2014. Doing so would be a dramatic escalation and broadening of a trade war already failing spectacularly.
Yet as with so many of Trump’s anti-China stunts, this one could do grave and lasting harm to America in global finance circles. It’s not clear if Trump would actually pull this trigger.
The Wall Street donors pivotal to financing Trump’s past-presidency Mar-A-Lago existence won’t love the capital-markets fallout from torpedoing two firms worth more than US$1.3 trillion, the equivalent to the annual gross domestic product of Spain.
Particularly since, in the longer run, it might do more harm to the US Treasury Department’s credibility than the net worth of Alibaba’s founder or Tencent’s Ma Huateng. Consider, too, the amateur-hour theatrics out of Trumpworld since December 31.
That day, the White House had the NYSE announce plans to delist China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd, sending shares hurtling lower. Three days later, the US said never mind and opted to keep the three giants trading as normal.
Two days after that, it flip-flopped on its earlier flip-flop: delisting will commence.
The Marx Brothers dynamic at play here means all Alibaba and Tencent shareholders can do is keep an eye on the @realdonaldtrump Twitter feed – if it’s still working – and hope for the best. It’s a “huge thing for the market,” says Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd.
Joe Biden’s incoming White House could always reverse anything Trump might do. Another hope is Trump might be too busy in his last 12 days in office fighting impeachment or criminal charges to attack Chinese tech anew.
Yet anti-China advisor Peter Navarro is still around – and agitating to make life hard for the Biden White House. The idea is to get as many actions on the books by January 20 that Biden can’t easily reverse, lest he be accused of going easy on China.
Navarro’s fingerprints seemed all over a January 5 move to ban transactions involving eight mainland software applications, including Ant Group’s Alipay app and Tencent’s QQ Wallet and WeChat Pay.
Such moves stem from Trump’s November executive order adding potency to a 1999 law allowing the Department of Defense to look for, and act against, links between military and tech companies, real or imagined.
On these grounds, Trump defense officials have blacklisted at least 35 companies, including top mainland chipmaker Semiconductor Manufacturing International Corporation, or SMIC, and China National Offshore Oil Corporation, or CNOOC.
All this has created immense confusion, volatility and even fueled conspiracy theories about Trump’s true motives. Just ask the folks at indexing giant MSCI, who since November have been tasked with discerning who is blacklisted, when bans are effective or which initially targeted corporate giants might Trump’s people decide can continue to trade in the US after all.
NYSE officials are getting in touch with those same emotions.
Alibaba’s confusion is also a product of Xi Jinping’s policies in Beijing. Ma, it’s been widely reported, hasn’t been seen publicly in more than two months. Speculation is rife since Beijing pulled the plug on a planned US$35 billion share sale by Ma’s Ant Group.
What would’ve been history’s biggest initial public offering was shelved after Ma’s now-infamous October 24 “pawnshop mentality” swipe at mainland regulators.
The mystery surrounding Ma’s whereabouts is a bad look for President Xi’s team, which pledged to let market forces play a “decisive” role. If Ma really is just laying low, as his allies claim, he’s savvy enough to know the good a brief appearance on social media or TV would do. And yet, silence.
“Though worst-case scenarios” about what Xi is going to do with Alibaba “still look far-fetched, growth prospects for the sector have dimmed,” says Andrew Batson of Gavekal Research.
Yet the Trump factor is the bigger wildcard at this moment. The fallout for trust in capital markets can’t be underestimated.
In recent days, officials at the US Treasury, Department of State and Department of Defense have been debating whether a quick wink at Trump’s political base is worth damaging Washington’s credibility as a capitalist power.
Who would ever trust US policymakers again? Not just for playing petty politics with capital markets, but also for Trump’s developing-market-like understanding of finance in geostrategic terms.
In mid-2020, for example, Trump officials considered canceling portions of the $1 trillion-plus of US government debt Beijing holds, effectively defaulting. Trump also ended America’s 23-year “strong dollar” policy and threatened moves to devalue the reserve currency.
The Federal Reserve, meantime, essentially nationalized the stock market. Really, the People’s Bank of China displayed more credible flashes of independence in 2020 than the Fed, Bank of Japan or Bank of England.
Another risk that Biden will inherit is the many ways China might retaliate. On Wednesday, Foreign Ministry spokesperson Hua Chunying accused Trump of “corporate bullying”, of being “hegemonic” and of “hypocrisy” in playing the national security card, as Trump has with Huawei Technologies.
“With its technical capabilities, the US monitors its own people everywhere, and people from all over the world, and steals data, including from its allies,” Hua said on state television service CCTV. “While doing indiscriminate surveillance and stealing secrets, it baselessly accuses other countries. It’s like a gangster who steals while clamoring to protect itself from theft.”
Gangsterism was on display at the US Capitol on Wednesday, when pro-Trump insurrectionists stormed Congress at the president’s behest. But Trump may be underestimating the leverage China has over his transactional White House – and Biden’s to come.
Count the ways Xi could ruin corporate America’s 2021. “China,” notes Ryan Hass at the Brookings Institution, “felt economic pain as a result of the trade war, though apparently not enough to capitulate to the Trump administration’s core demands for major structural reform.” So Xi’s really going to give in now?
Xi would be far more likely to hit back. The wildcard, or course, is whether Biden’s White House moves to lower the temperature with China. Odds are, it will. Still, Trump puts Biden in a bind. Rolling back many of Trump’s tariffs and bans would give Republicans room to call Biden too chummy with China. Trump and Navarro know this.
Still, China can retaliate in any number of ways. The yuan’s 6.5% rise versus the dollar in 2020 could easily turn into a 6.5% drop in 2021. Beijing could disavow all remnants of the “phase one” trade deal, and the tens of billions of dollars of agricultural goods it’s supposed to be buying that Trump loves to tout.
The roughly $1.1 trillion of US Treasury securities Beijing holds is almost too symmetrically proportionate to the combined market cap of Alibaba and Tencent to believe. This gives Xi’s government great leverage over Washington.
Sure, the chaos caused by dumping huge amounts of Treasuries would hurt China, too. It would hit the US harder as markets lose faith in the dollar and debt-servicing costs skyrocket.
China could ban sales by General Motors, Ford and, yes, Tesla. Telling Elon Musk to make – and sell – electric vehicles elsewhere would be a bigger problem now that Tesla, market cap $773 billion, is included in Standard & Poor’s 500 index.
Boeing would be in a terrible way if Xi’s government introduced an Airbus-only policy in the world’s most populous nation and most coveted aerospace market. A ban on Caterpillar products would be devastating, too.
Xi’s men could muck with supply chains that Silicon Valley takes for granted. China could cut off the flow of rare-earth materials integral to making batteries, memory chips and smartphones. Ditto for materials needed for medicines and vaccines to treat a number of ailments in the Covid-19 age.
“A shared desire in Washington and Beijing for stability in US-China relations will briefly ease headline tensions,” says Ian Bremmer of Eurasia Group. “But intensifying vaccine diplomacy and climate tech competition will combine with longstanding frictions in other areas to further complicate their rivalry.”
What’s to keep Xi’s Communist Party from telling Tim Cook he must start paying 40% levies on every Apple product assembled in China? The same for The Gap, Nike and Under Armour. How about new taxes on every sale made by Starbucks, McDonald’s and KFC? Or surcharges for theatres showing Hollywood’s latest blockbusters or households streaming NBA basketball games?
Nor will Trump’s Wall Street pals be happy if Beijing clamps down on American Express, BlackRock, Citigroup, Goldman Sachs, JPMorgan Chase, Vanguard and others. Trump has done severe damage to world trade and supply chains. Now, he’s eyeing one last shot at global stability – this time at capital markets.
The good news is that Biden, and likely a less vindictive China policy, is on the way. The bad is Trump and his cronies have 12 more days in power to poke Xi’s economy, one tech giant at a time. The even worse news is that America’s clout in global capital markets will get trumped in the crossfire.