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

[TOPICS: M$A$$$,M$Q$$$,M$U$$$,MC$$$$,MI$$$$,MT$$$$,MX$$$$,MGQ$$$,MGU$$$]