Between the pandemic and the protests, it was easy to miss. But for the last several months, the U.S. has been quietly adjusting its approach to China, going beyond President Donald Trump’s tweets and speeches.
Since April, the Trump administration has been warning federal pension funds against investing in indexes whose portfolios include large Chinese companies. It has tightened export-control regulations, suspended visas for students and regime officials and pressed for more transparent accounting standards for Chinese companies that trade on U.S. stock exchanges. Last month the State Department required a second batch of Chinese state media to register as foreign agents with the Justice Department. And administration officials tell me they are currently debating whether to follow India’s lead and press U.S. platforms to drop the Chinese social media app, TikTok.
Individually, these actions don’t add up to much. Taken together, however, they amount to a serious effort to decouple the U.S. and Chinese economies, the most profound shift in U.S. strategy since Henry Kissinger and Richard Nixon visited Beijing in 1972.
For nearly half a century the two countries have drifted toward economic interdependence. And while that drift enriched China, it failed to tame it.
Covid-19 in some ways exposed the failure of this approach. China gamed the World Health Organization, withholding data about the pandemic. On the U.S. side, the health-care industry faced a shortage in the first weeks of the crisis for essential medical items made in China, such as surgical masks. Had the U.S. prepared for alternative supply chains, vital equipment would have been more accessible.
The administration’s shift in policy has been subtle. Beginning in 2018, it launched a campaign against Huawei, the Chinese telecom giant that U.S. intelligence agencies believe is controlled by the People’s Liberation Army. With mixed results, the administration pressed allies to bar Huawei circuits and gear from their 5G networks, warning that Huawei’s participation in the next generation of wireless communications would give China listening posts throughout the world’s digital infrastructure.
In April, after the coronavirus was rampant in the U.S. and worldwide, the administration began taking aim at Communist system both rhetorically and bureaucratically.
The latest element of this campaign is a White House letter sent this week to the chairman of the U.S. Railroad Retirement Board. It urges him to divest the hundreds of millions of dollars in pensions it controls from companies that support the Chinese military and participate in the mass detention and “re-education” of the Uighur minority in Xinjiang province.
The letter provides a window into the Trump administration’s strategy to make elements of China’s economy toxic to financial markets. It warns that the board is investing in China “during a time of mounting uncertainty concerning the PRC’s relations with the rest of the world.” Those concerns, the letter says, “include the possibility of future sanctions or boycotts” that may arise because of a host of China’s misdeeds, ranging from the “culpable actions of the Chinese government with respect to the COVID-19 pandemic” to the “militarization of the South China Sea.” Other risks include the suppression of Hong Kong’s democracy, the contravention of U.S. sanctions against Iran and the human-rights abuses committed against the Uighurs.
This approach should be familiar to anyone who has followed U.S. foreign policy in the Middle East. Before the President Barack Obama imposed secondary sanctions against Iranian oil and its central bank, private groups like United Against a Nuclear Iran pressured investors to divest from companies and banks that did business with Iran’s economy.
So far, there is no evidence that this strategy has deterred China. In fact, Iran and China this week began negotiations for a new strategic pact aimed in part at circumventing U.S. sanctions.
Another problem is that the president himself tends to be capricious when it comes to his own government’s policies. As Trump’s former national security adviser, John Bolton, wrote in his memoir, the president sought China’s help for his re-election campaign and privately told China’s leader that he didn’t care if China built detention camps for Uighurs. In 2018, Trump instructed the Commerce Department to drop penalties against Chinese telecom ZTE after it was caught circumventing U.S. sanctions.
Some worry that this policy could amount to little more than a ploy in trade negotiations. “It may be transactional,” said Anders Corr, publisher of the Journal of Political Risk. “This could be a tit for tat for a better trade deal.”
That is always a risk with Trump. At the same time, the dangers of investing in China will remain whether Trump is president or not. Regardless of its motivations or timing, the administration’s campaign will serve a useful purpose if it causes Western corporations to reassess their relationship with a U.S. adversary.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.