Does The U.S. ‘Have Hand’ Over China?

Jerry Seinfeld told us in the good ole 1990s, “We all want the hand. Hand is tough to get. You’ve got to get hand right from the opening.”

For those who never saw that episode of the Seinfeld sitcom, having upper hand can be very important in a relationship. It’s like being a buyer who can walk away, versus the seller who cannot.

The U.S. has the upper hand in its ongoing trade war with China.

The U.S. government has targeted TikTok, the most popular social media app China has ever produced, and Huawei, the Chinese teleco that’s the world’s biggest producer of 5G wireless telecommunications equipment. The U.S. alleges Huawei’s technology opens the door to massive Chinese espionage of Americans, including military personnel. And becomes a source of data collection it can mine for free, sell and package at a hefty price.

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The Chinese government has made a concerted effort to save their economy by “playing nicer” with the U.S. and American companies they rely on for their economic survival, the Daily Proof newsletter authors wrote on Friday. The Daily Proof is most famous for its ex-Goldman Sachs central bank critic Nomi Prins, and perennial uber bear and gold bug James Rickards. They note that “there seems to be a struggle within China between the nationalist hard-liners who want to punish the U.S., and the central government who realize that the economy needs U.S. businesses to operate in their country — or face decades of economic weakness.”

The evidence comes from an article in the South China Morning Post, hardly a mouth piece of the Communist Party of China, but surely one with a critical eye on what’s happening up north in Beijing.

Beijing has not yet announced any measures to hit back against the August 17 worldwide curbs against Huawei subsidiaries.

China said 15 months ago it would create its own Entity List of foreign individuals, businesses and organizations that posed a threat to the country and would be sanctioned, just as the U.S. Commerce Department’s Entity List has done with more than 50 Chinese firms this year alone. To date, Beijing has yet to produce its version of the black list.

Dan Wang, an analyst at consultancy Gavekal, said the August 17 Final Rule by the Bureau of Industry and Security at the Commerce Department was akin to “a death sentence” for Huawei.

“Huawei is an important company, but Beijing is engaged in an aggressive campaign to sweet-talk big American firms to stay in China,” Wang was quoted as saying by the South China Morning Post. “It still needs American technology, and it needs U.S. business as an ally in its effort to temper the hostility of the U.S. government.”

Instead of tit-for-tat, Beijing will likely stand down in the hope that former Vice President Joe Biden wins.

This could be wishful thinking, though, as Biden is unlikely to be in full charge of his foreign policy. Some members of his China team, including Jake Sullivan, is quite hawkish on China. And any moves to back down on Huawei would be seen as weak, especially given expectations by Wall Street that a Biden presidency would roll back a number of tariffs.

Ding Shuang, chief economist for Greater China at Standard Chartered Bank, told the Post that Beijing’s priority was to keep as many foreign businesses in the country as possible to slow decoupling.

“China should not overreact and must calculate its potential loss before doing anything,” Ding says. “The time is not ripe yet for China to publish an unreliable entity list as it would only escalate retaliation from the U.S. The move would bring a far-reaching impact,” Ding says, adding that if Trump wins, it may become an option in an attempt to bring pressure on multinational American firms, who will thus bring pressure on the president through members of Congress.

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