“These events dramatically increase the risk that Chinese companies could be subject to sanctions or boycotts that jeopardize their business and profitability”, Larry Kudlow and Robert O’Brien wrote, in their letter to Eugene Scalia conveying the Trump administration’s decision to ban the Federal Retirement Thrift Board from implementing a planned shakeup that would have entailed investing some government employee savings in Chinese equities.
It was a veiled threat. “These events” was a reference to a possible coverup of COVID-19’s origins. And the allusion to sanctions was amusing to the extent Kudlow and O’Brien are themselves privy to discussions about potential punitive measures aimed at extracting reparations from China.
In other words, if anyone would know whether such “sanctions or boycotts” are in fact in the cards, it would be Kudlow and O’Brien. No need to play coy, gentlemen.
It comes as little surprise that less than 24 hours after the administration effectively moved to implement the first restrictions aimed at choking off capital flows to China, Lindsey Graham introduced legislation granting Trump authorization to sanction Beijing if the Chinese leadership “fails to cooperate and provide a full accounting of the events leading up to the outbreak”.
The bill gives the White House 60 days to certify that China has provided a complete account to any investigations spearheaded by the US or a UN affiliate into the virus. It also says Trump needs to certify that China has shuttered wet markets which pose a risk to public health.
On top of that, the bill calls for the release of pro-democracy protestors in Hong Kong.
Graham – a vocal proponent of punitive measures – has several GOP co-sponsors. Thom Tillis, Cindy Hyde-Smith, Mike Braun, Rick Scott, Steve Daines, Todd Young, Jim Inhofe and Roger Wicker all support the bill.
Last month, during a truly inflammatory segment with Fox’s Sean Hannity, Graham ludicrously suggested the US attempt to orchestrate a selective default on the country’s “debt to China” as retaliation for the pandemic.
Of course, US Treasurys are just securities. They are not specifically IOUs to China. Beijing can simply sell them to someone else in the event Xi determines the threat of debt repudiation is any semblance of real.
Any such shenanigans would upend markets and could very well constitute a credit event in the eyes of ratings agencies, a disastrous outcome nobody even cares to think about, let alone see realized.
While Graham’s intentional default idea isn’t logistically possible absent some manner of action from Treasury declaring China personae non gratae and threatening sanctions against any entity which transacts in US debt with Beijing or parties acting on its behalf, other measures aimed at squeezing the country will garner bipartisan support.
Trump’s push to blackball Huawei and ostracize a handful of Chinese surveillance companies in retaliation for the systematic disregard for human rights in Xinjiang last year are a blueprint, and the administration is keen to scapegoat Beijing as the US economy collapses in an election year.
As of now, there is no evidence whatsoever to support the theory that COVID-19 is manmade. Similarly, there is not a shred of proof to back up assertions that the virus was part of any bioweapons program.
But Trump and the GOP needn’t make the claim that China deliberately released the pathogen on the world to push the case for sanctions. Simply asserting a coverup will do the trick at a time when both parties recognize the political utility in chastising China’s lack of transparency in the months ahead of the election. You can expect virtually everyone inside the Beltway to adopt a hawkish foreign policy lean towards Xi over the summer.
That, in turn, sets the stage for retaliatory action, starting (perhaps) with Beijing declaring the trade deal void or otherwise demanding it be renegotiated in China’s favor. The Global Times floated just such a plan on Monday. Trump has already dismissed renegotiations as a non-starter.
Finally, I would note that it’s just a matter of time before protests flare up in earnest again in Hong Kong. That will invariably exacerbate Sino-US tensions, just as it did in the fourth quarter of 2019.
One-pagerCOVID-19 Accountability Act - Summary