China was America’s whipping boy again this week. President Trump used his United Nations General Assembly speech to accuse and to threaten Beijing for its role in covering up the early stages of the pandemic. He said that the U.N. “must hold China accountable for their actions.”
In other words, China must pay. Tough words with the promise of an even tougher response.
But rhetoric is where the toughness ends because China continues to profit from Washington’s indifference, political ineptitude and irresponsible policies. In reality, American farmers, consumers and middle-class citizens are paying the heftiest price for China’s misbehavior, rights abuses, cyber-espionage and intellectual-property theft.
Tariffs have been the main tool that the administration has used to get China to clean up its trade act and to compete fairly in the global marketplace. The problem, of course, is that tariffs haven’t hurt China. Tariffs are taxes paid by Americans on Chinese goods — from tires to toilet paper, golf bags to car parts.
China hit back with tariffs of its own, directly hurting farmers and manufacturers who are finding it harder to export their goods. That giant sucking sound is American wallets being emptied. To add insult to U.S. citizens’ financial injury, these tariffs were just ruled illegal by the World Trade Organization (WTO).
But not everyone is suffering or a victim of the administration’s get-tough-on-China policies. Western banks are skirting rules, acting indifferently and profiting heavily despite the real threats of China’s state-owned industries.
On the same day the WTO released its ruling against U.S. tariffs, American financial institutions sent a supportive signal and inordinate amounts of cash to “Communist Chinese military companies” blacklisted by the Pentagon. That’s right, on the one hand, the U.S. government was trying to ding China’s economy and industry while, at the same time, U.S. banks were floating billions of dollars in bonds to support and underwrite these very same suspect organizations.
It’s not news to report that profitable banks don’t play by the same rules as lowly consumers. Ask Wells Fargo. Re-Watch “The Big Short.” The year 2008 is not yet ancient history, and anyone with a mortgage from the last decade recalls how banks showed their compassion and patriotism: They both suckered unqualified homebuyers into time-bomb adjustable-rate loans and followed that questionable practice with snap foreclosures. Yeah, banks are necessary, but at times they seem more like a necessary evil.
In this case, banks are effectively underwriting a strategic competitor’s military to undermine American national interests and threaten U.S. national security. Bank of America, Goldman Sachs, JP Morgan and Morgan Stanley all are involved — as are others — to help underwrite a bond issuance for China Three Gorges Corp., one of the world’s largest energy companies. That’s just one of China’s big strategic companies working to corner markets and feed its military machine.
China National Chemical Corp. (CNCC), too, is a state-influenced, owned and dependent enterprise. Both Three Gorges and CNCC are “military companies” benefiting from global capital. They leverage open societies and free markets to drain U.S. dollars — money that comes from American consumers and investors — from the American marketplace. Money going to China’s military companies is money that does not get spent in America first.
The administration has done a good job highlighting the disparity between China’s unfair global corporate practices and how the rest of the world operates in the free marketplace. China spreads not only substandard infrastructure around the world, for example, it also actively neglects basic workers safety and health in construction and manufacturing. China further fosters a system that encourages corruption for permits, proposals and private profiteering.
Contrast that with America’s friends and allies, who mostly play by international trade rules and factor in labor and environmental concerns in their projects and corporate principles.
Not so Three Gorges or CNCC.
When will this tough-talking administration hit the Western institutions — whether banks or multinationals — that are underwriting America’s “strategic competitor”? How much longer should Western citizens foot the bill in this lopsided trade war with China?
There is no question that Americans have paid with their health and their pocketbooks in this growing geopolitical struggle. Unfortunately, as in previous global battles, there are those who are paying the price and others who are profiting handsomely.
Allied nations, U.S.-headquartered multinational corporations and global financial institutions scoff at policies that might bring China to heel. They justify this by arguing for their fiduciary shareholder accountability and need for profit maximization. Reasonable considerations, of course, unless they do so for China’s strategic benefit and at America’s peril.
It’s time for these corporations and banks to make a significant withdrawal from China.
Markos Kounalakis no longer has a Christmas Club account. He is a visiting fellow at the Hoover Institution.