Opinion | Financial markets are a key source of America’s prosperity, so leave them out of the US-China trade war

The clamour to place greater restrictions on Chinese investment is growing on Capitol Hill. However, such a move would be deeply irresponsible, not least because it would threaten both the US economy and its global influence

Reading Time:4 minutes

Published: 3:00am, 4 Oct 2019Updated: 3:57am, 4 Oct 2019

US-China relations have further deteriorated in recent months, and escalating friction is affecting most channels of economic interaction between the two countries, including trade, direct investment and the flow of people. Financial markets are the latest aspect of the relationship to come into the cross hairs.

Politicians and pundits with a hawkish bent are proposing to curtail bilateral investments in stocks, bonds and other financial assets. Such “financial market decoupling” rhetoric is short-sighted and will adversely affect long-term US economic and national security interests.

After the US enacted tougher scrutiny on Chinese inbound investment last year, some politicians and other commentators are now proposing to pull Chinese access to US financial markets into the trade war negotiations. For example, the owner of the NBA’s Dallas Mavericks, Mark Cuban, has called on President Donald Trump to block Chinese entities from issuing, purchasing or trading stocks, bonds and other financial securities in the US.

Others are pushing to restrict US entities from investing in China’s financial markets. Steve Bannon, Trump’s former chief strategist, claims we need to “unwind all the pension funds and insurance companies in the US that provide capital to the Chinese Communist Party”.

In April, a bipartisan group of US representatives and senators sent a letter to the Treasury, State and Commerce departments calling for the penalising of US firms that financially support Chinese firms that enable human rights violations and urging greater scrutiny of public fund investment in these firms. Last week, word leaked out that the White House may restrict portfolio flows into China, potentially affecting hundreds of billions of dollars of investment.

These developments echo the irresponsible rhetoric in other areas and must stop. We must avoid making financial market access a tool for short-term geopolitical objectives.

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