China Will Pay a Price for the Virus
Author: Greg Valliere
May 1, 2020
THE VILLAIN: The verdict is in, from Republicans, Democrats, Europe and Australia: China concealed the severity of the coronavirus and continues today to deceive the world about the pandemic. China has become an international pariah.
WE HAVE WRITTEN FREQUENTLY about the desire to punish China, and retribution now is on the table, as both parties in Washington openly debate options. President Trump has a potent campaign issue, as his allies weigh legal options against Beijing.
BEFORE WE LOOK AT RETRIBUTION, we’ll state what is increasingly obvious: relations between the U.S. and China are headed for a deep freeze, with no progress likely on a Phase Two of trade talks. We’re not even sure there’s compliance with Phase One, as more sanctions lurk.
ONE OTHER CRUCIAL POINT: The China-bashing will not be exclusively Trump’s crusade. There’s deep antipathy toward China among many Democrats, from Chuck Schumer to Elizabeth Warren. There’s anger in Western Europe, where Chinese aid has been viewed as disingenuous. And there’s a desire in Australia to examine the
virus labs in Wuhan.
YET THE CHINESE COMMUNIST PARTY has been tone deaf, resuming its crackdown in Hong Kong. A scathing editorial in this morning’s Washington Post notes the dictatorship’s stonewalling, disinformation, and attempts to intimidate global critics. This is a prescription for retribution, and Trump will lead the way.
THE UNLIKELY OPTIONS: We understand the desire to make China pay trillions of dollars to compensate victims, but we doubt that pending lawsuits will succeed. It’s unlikely that any plaintiff will get a dime because that would require stripping China of its sovereign immunity. Another option — refusing to make Treasury bond interest payments to China — would set a deeply troubling precedent for fixed income investors.
TWO LIKELY OPTIONS: First, Trump famously declares that he’s a “tariff guy,” and you can be certain that he is considering crippling new tariffs against Beijing, which would guarantee retaliation and a new trade war that probably would hurt China more than the U.S.
THE MOST LIKELY OPTION — SUPPLY LINES: One of the major lessons learned in the West as the virus raged is that supplies from China — including medical products and pharmaceuticals — are not guaranteed.
CONGRESS IS LIKELY TO PASS CURBS on U.S. reliance on Chinese supply lines, while enacting incentives to U.S. firms that manufacture here, not abroad. Trump and Commerce Secretary Wilbur Ross have called for returning manufacturing to the U.S., and they may get their wish.
WHO’S THE TOUGHEST ON CHINA? That will be a hot topic as the presidential campaign heats up. Joe Biden is running a TV ad that chides Trump for his warm statements about Chairman Xi, but Trump will hit back hard at Biden’s benign views of China — as well as business dealings Biden and his son have enjoyed with Beijing.
BOTTOM LINE: We’re headed for a deep freeze in relations with China. Lawsuits will be a publicity stunt, unlikely to succeed. But new tariffs and a Western aversion to Chinese supply lines will be a big deal that will impose an economic price on
Beijing, which is facing a manufacturing slump — and, perhaps, a restive population
that has been lied to, like everyone else.
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