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Trump’s China hawks are taking wing

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This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.

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

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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