Why markets don't like U.S. investment restrictions on China

The Chinese flag and the US Stars and Stripes fly on a lamp post along Pennsylvania Avenue near the US Capitol. Reuters  File

The Chinese flag and the US Stars and Stripes fly on a lamp post along Pennsylvania Avenue near the US Capitol. Reuters File

The tensions, which for weeks have struck fear into the hearts of global investors, add to those sparked by the trade dispute between the U.S. and European Union.

But contradictory statements Monday from senior U.S. officials have muddied the waters on what path the White House will take.

Following the results of an investigation initiated by the U.S. in August 2017, the Trump administration released a list of 1,333 Chinese products under consideration for 25% tariffs in April, citing the investigations report that China was conducting unfair trade practices relating to technology transfer, intellectual property (IP) and innovation.

New rules that would curb investment in American technology firms are reportedly in the works within the Treasury Department.

Citing national security concerns, which the White House says encompass economic as well as traditional defense matters, Trump in late May announced plans to impose steep tariffs on Chinese goods, and then by June 30 to unveil "specific investment restrictions and enhanced export controls" tied to "industrially significant technology" that will apply to Chinese companies and investors.

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But the restrictions come at a time of rapidly declining Chinese investment in the United States.

Bloomberg reported that the White House is planning to take a hard line, against the advice of US Treasury Secretary Steven Mnuchin.

"The leaker either doesn't exist or know the subject very well".

The S&P 500 Index closed down 1.35%, which says many United States investors believe the worst case scenario won't happen with a trade war and I hope they're right but we're gambling with the former casino owner called Donald Trump.

The U.S. Treasury is due to issue its recommendations on Chinese investment restrictions on Friday.

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"But in many ways, the U.S. tech sector is now being treated as an issue of economic security and national security", said Triolo, which he said would prevent further collaboration - especially following concerns about Chinese espionage on USA communications networks.

The economy "is going to a handsome place right now", Navarro said on CNBC.

Stocks fell in midday trading Monday, with the Dow Jones industrial average down as much as 446 points, amid reports of protectionist policy pushes by the Trump administration that would ramp up trade tensions on multiple fronts.

United States overtures towards Taiwan, from unveiling a new de facto embassy to passing the Taiwan Travel Act, which encourages USA officials to visit, have further escalated tension between Beijing and Taipei. Congress, in parallel, is working on reform legislation to CFIUS that would scrutinize inbound investment in the USA on national security grounds.

The EU has long blamed China for the global over-capacity of steel, and has imposed steep tariffs on Chinese steel to protect Europe's domestic metals industry.

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U.S. officials have highlighted Beijing's "Made in China 2025" industrial development plan as a source of concern since they say it is a map for dominating key high tech industries from space to telecommunications to robotics to electric cars. Cohn, a former president of Goldman Sachs Group Inc., warned this month that trade disputes could wipe out the benefits of Republican tax cuts passed in December.

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