Trump’s China hawks are taking wing

June 26, 2020

On Monday, U.S. President Donald Trump clipped the wings of one of his fiercest China hawks after the aide’s assertion that the U.S.-China trade deal is “over” sent markets into a tailspin.

The aide, White House trade adviser Peter Navarro, offered the bleak assessment in an interview with Fox News. Within hours he was scrambling to walk it back. Trump himself took to Twitter to reassure investors that the China deal is “fully intact.”

The exchange highlights the administration’s increasing difficulty in convincing voters Trump is serious about “getting tough” with China—without roiling markets or torpedoing the “phase one” trade pact the two countries signed in January.

Trump, trailing badly in the polls, has come under new pressure to “stand up” to China since the publication last week of the tell-all memoir by his former national security advisor, John Bolton.

Bolton alleges that, in his meetings with Chinese President Xi Jinping, Trump fawned over his counterpart as the “greatest leader in Chinese history” and “pleaded” for Xi to ramp up soybean imports from states Trump must carry to win re-election.

Trump disputes Bolton’s account and has blasted his former aide as a “liar.” But in the past week, the administration has gone to extraordinary lengths to burnish Trump’s anti-China bona fides.

At rallies in Oklahoma and Arizona, Trump lambasted China for America’s economic woes and referred to the coronavirus several times using an ugly racist slur.

Trump’s China hawks are taking wing. On Wednesday, Trump’s current national security advisor, Robert O’Brien, assailed China’s leadership in stark rhetoric reminiscent of the Cold War. "America, under President Trump's leadership, has finally awoken to the threat the Chinese Communist Party's actions pose to our way of life," he said.

Washington Post columnist Josh Rogin reports that Secretary of State Mike Pompeo, Attorney General William Barr and FBI Director Christopher Wray also plan tough China speeches in the coming weeks, and each of their agencies is pushing new initiatives to confront Beijing. Trump has floated the idea of inviting India, Australia, South Korea, and Brazil to join the Group of Seven countries in a kind of “counter-China coalition” meeting parallel to the upcoming summit. On Thursday, Pompeo surprised officials in Brussels by announcing that the U.S. had accepted a proposal to create a new U.S.-European Union dialogue on China.

Those efforts come as U.S. lawmakers from both parties clamor for greater restrictions on America’s economic relationship with China. The Senate last month approved a bill that could force mainland companies to delist from U.S. stock exchanges if they fail to comply with U.S. regulations. On Thursday, the Senate passed legislation that would impose sanctions on people or companies supporting efforts by China’s national government to undermine the autonomy of Hong Kong.

Sponsors of yesterday’s bill said it was a response to Beijing’s decision to impose a new security law on Hong Kong via China’s national parliament, bypassing Hong Kong’s legislature. Passed by unanimous consent, it includes sanctions on banks that do business with anyone supporting efforts to restrict Hong Kong’s autonomy, potentially barring violators from dealing with American counterparts and limiting their access to U.S. dollar transactions. To become law, it must also pass the House of Representatives and be signed by Trump.

In the escalating conflict between the world’s two largest economies, Hong Kong increasingly finds itself caught in the middle. Earlier this month, Trump vowed to revoke Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China. Sor far, the White House has offered no details on the change.

But Hong Kong may prove to be a windfall beneficiary of efforts to deprive Chinese companies of access to U.S. capital markets. Hong Kong Stock Exchange CEO Charles Li says the exchange is seeing “tremendous interest” from Chinese companies exploring secondary listings in Hong Kong. As Fortune‘s Eamon Barrett and Naomi Xu Elegant explain , the financial impact of that “emigration” of mainland companies to Hong Kong could be enormous—and will likely enhance’s Hong Kong stature as a global financial capital, possibly at the expense of American investors.

This week’s Eastworld Spotlight conversation with Jennifer Zhu Scott, founding partner of Radian Capital and past co-chair of the Fortune Global Tech Forum, explores how China’s push for a central bank digital currency is fueled at least in part by fears that the America’s China hawks eventually will seek to impose financial sanctions as well as trade sanctions against China—or even cut it off from the global payments system.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.

Eastworld news

Pressure on China ramps up

Europe appears to be re-examining its relationship with China. On Monday, the president of the European Commission Ursula von der Leyen met with Chinese President Xi Jinping and premier Li Keqiang. In a press conference afterwards, von der Leyen said she called on China to drop its national security law in Hong Kong, hold up its global trade and climate commitments, address human rights issues in Xinjiang and Tibet, and discontinue cyberattacks in the EU. This harsh rhetoric marks an escalation for the EU, but it did not announce specific policy measures to ensure that China would meet its demands. Foreign Policy

Backs to Huawei

On Thursday, U.S. Secretary of State Mike Pompeo said the tide is turning against Huawei, the Chinese telecommunications giant. The U.S. has blacklisted Huawei since May 2019, and more recently Huawei's contracts have become the subject of controversy in the U.K. and across Europe. Now, however, there are indications that countries in Asia may be turning their backs on the global telecommunications firm too. On Wednesday, Singapore announced that it would opt for Sweden's Ericsson and Finland's Nokia to build the city-state's 5G infrastructure. On Thursday, leading Japanese telecoms firm the Nippon Telegraph and Telephone Corp. announced that it was taking 5% stake in NEC Corp., a Japanese 5G equipment manufacturer. Nikkei Asian Review

Reckoning with racism

Since the late 1980s, Colgate-Palmolive, the U.S. oral healthcare giant, has owned a 50% stake in Hawley & Hazel, a consumer products company with a flagship toothpaste brand called Darlie. Darlie, once called Darkie, was crafted in the 1930s in the image of American, black-faced minstrel performers. In Chinese, the popular toothpaste is still called "black people toothpaste" and has a racist cartoon on its packaging. Colgate says it is now working with Darlie to "review" and "evolve" all aspects of the brand. Johnson and Johnson also said this week that it will stop selling its skin-lightening products in Asia. Bloomberg

The end of poverty?

In 2013, President Xi Jinping declared that China would eradicate extreme poverty by the end of 2020, a date that is now fast approaching amid a global pandemic and economic downturn. This week, The Financial Times visited Atule'er, a village at the forefront of China's poverty alleviation goals and detailed a range of measures aimed at lifting villagers out of poverty that range from empowering to bizarre. In one instance, local officials graded 'poverty-stricken households' in the village with placards posted on their doors that rated how well members of the household were performing in lifting themselves out of poverty. Financial Times

China's Anthony Fauci

On Jan. 20, Professor Zhong Nanshan, a top public health official in China who is often referred to as China's Anthony Fauci, announced on Chinese television that COVID-19 could spread between humans. While doctors like Li Wenliang had previously tried to alert the wider public to the potential dangers of the disease, Zhong's announcement was the first time a top official publicly contradicted the government line that the disease could not spread between humans. This week, Sup China outlines how Zhong established credibility in helping China fight SARS in 2003. That outbreak earned him popular support and trust with the government that allowed him to take a leading role in China's fight against the current pandemic. Sup China

Coronavirus by country

The Philippines

In the last month, the number of coronavirus cases in the Philippines has more than doubled, from just over 14,000 on May 26 to more than 33,000 today. The spike is causing strife at the top levels of the Filipino government. On Thursday, Vice President Leni Robredo called out her own government for its early complacency in combatting the pandemic, for leaving the country open for too long to international travelers, and for not ramping up testing capacity fast enough. Meanwhile, President Rodrigo Duterte has accumulated extraordinary powers in the midst of the pandemic. After dismissing the threat of the pandemic in February, the Filipino legislature granted Duterte emergency powers in March that gave him more control over public funds and led to the government setting up military checkpoints across the country to enforce lockdowns. Some portions of the country remain under lockdown, and Duterte is seeking to extend emergency powers that are set to expire this week. CNN

Markets and movers

Lazada – The southeast Asia arm of Chinese e-commerce giant Alibaba is getting new leadership. On Friday, Lazada announced that former Alibaba executive Chun Li will replace Lazada co-founder Pierre Poignant as CEO of the firm. Lazada serves over 300 million customers across six markets in southeast Asia. Reuters

Tencent – The Chinese tech giant is buying iFlix, the Malaysian video streaming platform with 25 million active users across southeast Asia. The terms of the deal remain private, but analysts expect that Tencent got a significant discount due to iFlix's recent financial troubles. Deal Street Asia

Jio Platforms – On Wednesday, India's top antitrust watchdog approved Facebook's $5.7 billion investment in Jio Platforms, clearing the Indian telecoms giant and U.S. social media firm of engaging in anti-competitive behaviors. The approval cements a deal that set off a fundraising flurry that has netted Jio over $15 billion in investments in the last 11 weeks. Bloomberg

Final figure

$5.3 billion

The U.S. government is among the largest landowners in Hong Kong, with land holdings of more than $5.3 billion, according to the South China Morning Post. The U.S. negotiated with Hong Kong for the land just two years after the city's handover in 1997, signing a rare 999-year lease for properties that include the U.S's consulate and staff residences. The landholdings in Hong Kong suggest the U.S. may have money on the line its on-going battle with Beijing over Hong Kong's new national security law. "The value of the U.S. government's holdings in Hong Kong underscores what's also at stake for America," the South China Morning Post reports.