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MNI EXCLUSIVE: US To Clamp Down On China Amid Virus Blame Game

--U.S. likely to escalate economic conflict with China, accelerate decoupling
--Moves Could Include Cutting Off Access To Capital Markets, Former Officials
Say
By Ryan Hauser
     WASHINGTON (MNI) - The U.S. is preparing a wide range of economic reprisals
against China amid acrimonious accusations that Beijing mishandled Covid-19,
former U.S. officials told MNI this week, with one saying the U.S is likely to
restrict Chinese access to American capital markets
     The U.S. will also likely move to repatriate supply chains and further curb
the expansion of Huawei in U.S. and foreign markets, they said.
     The Phase One trade deal may be under strain, but current tensions are
driven by geopolitical finger-pointing over Covid-19, said former National
Economic Council deputy director Clete Willems. He expected a "doubling down" on
existing policies alongside a "strengthened hand" for China hawks.
     --RENEWED TARIFF RISKS
     "We're going to a place where we were before [China] entered the WTO, which
is a permanent set of tariffs against what is a non-market economy," said
General Robert Spalding, a former Trump National Security Council official.
     Jeff Moon, a former senior U.S. trade diplomat, said the relationship is
"threatened on both sides by a lack of transparency, conspiracy theories,
inflammatory propaganda, and new protectionist regulations" that will likely
escalate during the run-up to this year's U.S. Presidential election.
     President Trump "clearly prefers tariffs," but "the faltering U.S. economy
will limit his ability to indirectly impose even more taxes on the American
people," said Moon.
     It is unlikely there will be a single "tripwire" when it comes to China
reneging on Phase One promises, said James Green, a former USTR official, but
retaliatory tariffs are back on the table if the consultation process breaks
down.
     If China is able to make its Phase One commitments but fails to do so, then
"there will be a reaction by the White House to some degree" whether that's
"tariffs or something else," said former Trump NEC deputy director Kelly Ann
Shaw. "I don't see a scenario in which the president and his advisors stay quiet
and let China get away with not complying."
     Green, however, said the status of many Phase One purchases won't be known
until sometime in 2021, and "while renewed tariffs are possible," both
governments are "looking to avoid a breakdown" that would see the resumption of
politically and economically damaging tariffs.
     --NON-TARIFF COUNTERMEASURES
     Rather than tariffs, the "bigger risk" for the Chinese is being "cut off
from our capital markets going forward," said Spalding, now a Hudson Institute
senior fellow. "That's going to impinge on their growth."
     Initially, American chief investment officers will "come under potential
liability" if they ignore SEC warnings about the failure of capital-raising
Chinese firms to meet financial audit and the transparency obligations, Spalding
said, adding that he doubted that they will be able to meet them because of
Chinese state security policies.
     Willems expects the U.S. will tighten the Commerce Department's foreign
direct product rule as it applies to Huawei in the next couple of weeks to close
loopholes that allowed the company and HiSilicon to get semiconductors and
related components from the U.S. through third-party markets in Taiwan. "You're
going to see that move forward for sure in relatively short order," he said.
     Willems also expects an executive order on repatriating U.S. medical supply
chains "pretty soon" but said the Administration is catching flak from
pharmaceutical companies, not just free-trade proponents, adding that "it's
controversial within the White House."
     U.S. legislation proposed by Republican Senators is also calling for the
repatriation of U.S. supply chains. Shaw said the Hill and the Administration
are both concerned about reshoring, and "if those interests align, there
ultimately would be cooperation between the two."
--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com
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