- CFIUS Tightens Controls on Chinese Investment in Key Sectors.
- US Moves to Block Chinese Trade Loopholes via Mexico.
- Trump Proposes Fees on Chinese-Made Commercial Vessels.
The Donald Trump government has imposed tough restrictions on Chinese investment in key American sectors, heightening tensions between the two economic giants, reports Financial Express.
CFIUS Restrictions on Chinese Investment
In a recent memo, President Donald Trump directed the Committee on Foreign Investment in the US (CFIUS) to tighten rules on Chinese investments in technology, energy, and other strategic industries. The action is intended to protect what the administration calls “the crown jewels” of US assets, including technology, food stocks, farmland, minerals, natural resources, ports, and shipping hubs.
By labelling Beijing as a “foreign adversary,” the administration has indicated a more assertive approach towards China’s economic presence in the US.
Closing Trade Loopholes Through Mexico
The Trump administration has also pressed Mexico to impose tariffs on Chinese imports as a countermeasure against China’s attempt to sidestep US tariffs. This is a pattern whereby Chinese companies divert their output to Mexico in an attempt to escape duties enacted in Trump’s initial term. Through pressure against Mexico, the administration seeks to shut down the loophole and tighten further China’s economic flexibility.
Charges on Commercial Vessels Made by China
Another suggested measure is the imposition of charges on Chinese-made commercial ships, a move sought to weaken China’s control in global shipping. Upon this revelation, stocks of Chinese shipping companies dipped while the country’s benchmark CSI 300 Index declined 0.2%. Yet the onshore yuan gained 0.1% to 7.2480 against the US dollar in Shanghai.
Impact on Future Trade Negotiations
These measures are some of the most assertive economic actions of Trump’s second term, which have left speculators wondering whether a future trade agreement is possible to help lower China’s trade surplus with the US. China had previously hoped to leverage large-scale investments in the US as a bargaining tool in negotiations.
However, the new restrictions cast doubt on that possibility. Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, noted: “This shift is likely to be a disappointment for Beijing and raises questions about whether the US would welcome Chinese investment in any form.” China’s investment in North America has already fallen off a cliff, with levels at the close of last year falling below those of the pandemic. Numerous prospective investors had been holding off on financial moves until the US presidential election result was known. With these new restrictions, the future for Chinese investments in the US seems even bleaker.
Beijing’s Response
After the release of the memorandum, China’s Commerce Ministry called on Washington to desist from applying economic and trade policies as a weapon. Beijing cautioned that intensified examination of business relations in terms of security may gravely damage Chinese enterprises’ confidence in making investments in the US.
Review of the US-China Tax Treaty
The Trump administration’s crackdown goes beyond trade and investment restrictions. The memorandum also proposes reviewing a 1984 tax treaty between China and the US. The treaty currently keeps people and companies from being taxed twice on income received in both countries.
Eliminating this agreement could introduce significant uncertainty for investors. Chorzempa explained: “Eliminating these kinds of treaties just makes things very uncertain and complicated for investors because they do not know if they are going to be taxed.” With these latest restrictions, the economic relationship between the US and China faces heightened uncertainty, further complicating future trade and investment negotiations.
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Source: Financial Express
