Donald Trump on Friday terminated America’s relationship with the World Health Organization during a hotly-anticipated press conference laying out the case for corrective action against Beijing in connection with a laundry list of grievances.
“China’s coverup allowed [COVID-19] to spread all over the world”, Trump declared, adding that “Chinese officials ignored their reporting obligations [and] pressured WHO to mislead” the international community. “China has total control over WHO”, he assessed, on the way to saying the US is now ending its relationship with the Geneva-based body.
This comes a little over a month after the White House suspended funding for the organization, alleging a coverup and blaming WHO for the loss of life globally.
Trump went on to accuse China of all manner of malfeasance, including unlawfully claiming territory in the Pacific Ocean, misleading US investors, and, of course, encroaching on Hong Kong’s autonomy.
“This was a plain violation of Beijing’s treaty obligations. The truth is Hong Kong was secure and prosperous as a free society”, Trump said, of the planned imposition of new security laws in the city. “China’s latest incursion makes clear that Hong Kong is no longer sufficiently autonomous to warrant special treatment”, he added, charging Beijing with transforming “One country, two systems” into “One country, one system”. (China will not take kindly to that.)
Trump then said he will direct his administration to eliminate policies that give Hong Kong special treatment, including extradition treaties and export controls. Chinese officials will be sanctioned, he said.
The president also exhorted investment firms not to expose their clients to “China risk”. A “working group” will be established to study US-listed Chinese firms, he remarked.
Additionally, Trump said he’ll take action to stop entry for some foreign nationals.
Markets initially sank as he spoke, but pared losses to trade positive. Early Friday, reports indicated Trump would announce his support for bipartisan legislation which authorizes sanctions on Chinese officials for human rights abuses.
Ostensibly, Trump’s rhetoric and the measures the US president says the administration is now actively considering mark a significant (if expected) escalation in tensions with Beijing at a delicate juncture for both nations. But the verdict seems to be that there were no surprises, and that’s all the market needed to know.
China is attempting to climb out of an unprecedented economic contraction while fending off accusations that the Party engaged in a coverup during the initial stages of the coronavirus outbreak. At the same time, the international community has expressed extreme consternation at Xi’s decision to effectively impose mainland national security laws on Hong Kong by decree in a bid to snuff out the violent, pro-democracy demonstrations which have left the city’s economy in tatters.
Locals see the new laws as the beginning of the end for the city, at least in terms of its coveted status as a vibrant hub for international business and finance. For its part, Taiwan is understandably not amused.
In the US, meanwhile, both parties are acutely aware of the extent to which the pandemic can be leveraged for political points ahead of the election. Each side is keen to blame the other while simultaneously faulting China to varying degrees. It’s a rather odd juxtaposition that pairs partisan bickering over hotly-contested domestic issues (e.g., the proper course for reopening states) with a bipartisan push to crack down on Beijing for everything from human rights abuses to a lack of transparency around COVID-19 to well-known accounting irregularities at Chinese firms listed on US exchanges.
The US economy has plunged into the deepest recession in a century, but domestic equities have rebounded strongly. Mainland shares in China have underperformed the S&P for two months in a row.
In China, it’s the opposite. The economy has rebounded, but markets are on edge pending the next move from Trump and US lawmakers.
As for the trade deal, the White House doesn’t intend to scrap the agreement – yet. And that’s giving investors an excuse to hang in there, even as tensions escalate.
Trump has variously touted the “phase one” agreement as one of the most monumental accomplishments of his presidency, and while he admits to having cooled on it in light of recent events, abandoning it altogether would mean that two years of damaging tit-for-tat escalations were all for nothing. That, in turn, would open the door for Democrats.
Ultimately, nobody believes China can or will live up to its commitments under the deal this year. While the White House (and, likely, Beijing) will insist that everyone is doing their best considering the exigent economic circumstances, there’s just too much ground to make up and too little time. Even if there’s a will, there may not be a way.
Ultimately, markets are in a forgiving mood and reopening optimism still takes precedence over geopolitical tension in the minds of those intent on chasing the rally in stocks (or those who have become forced buyers).
Through it all, don’t forget that we are quite possibly witnessing the beginning of what could be a complete decoupling between the world’s two superpowers – especially if Trump is reelected in November.
Although the likes of Peter Navarro and Steve Bannon have long argued for such a clean (or maybe “messy” is more apt) break, the very fact that the two sides were actively negotiating a trade agreement the whole time meant such an outcome wasn’t really in the cards.
A lot has changed since then. 2020 is not 2019. For all kinds of reasons.