Mnuchin suffers from a setback in the US plan to limit Chinese investment

The Trump administration plan to deploy some of the most restrictive investment limits in its economic arsenal against China marks a setback for the efforts of Treasury Secretary Steven Mnuchin to adopt a less confrontational approach towards Beijing.

According to the plan, the White House would use one of the most extensive legal tools available to declare China's investments in US companies involved in technologies such as new energy vehicles, robotics and the like. aerospace threatens economic and national security. with the plans.

Mnuchin has been working on the plans since December, but has always advocated a less aggressive approach negotiated with the Chinese behind closed doors. In the end, he was persuaded by the President and other Cabinet members to use blunt tools to deal with the risks associated with Chinese investments, they said.

Some government officials fear that restricting Chinese investments on the basis of a supposed national economic emergency could rattle the US stock market or trigger retaliation against US companies operating in China, they added.

Brewing of the trade war

This decision should also be consistent with an internal European Union memo obtained by Bloomberg, according to which Trump's aggressive approach to long-standing US partnerships could unravel decades of progress and force nations to return to the United States. a system where they could prevail.

It's a move that would put Washington's brewing trade war with Beijing on a potentially irreversible trajectory, even though the Chinese authorities have been looking for ways to reach a détente with the United States.

Mnuchin, in a report expected to be released June 29, will propose administering this law through an inter-agency government group called the US Foreign Investment Committee, says the people, asking for anonymity to discuss plans.

One concept under study would be to create a two-way CFIUS process to review investments, with a specific process for China, said two people.

A spokesman for the Treasury did not respond to a request for comment.

Aggressive approach

The head of the Treasury has kept a low profile in recent weeks. People familiar with Mnuchin's thinking said that after losing an internal battle over how to handle the trade dispute with Beijing, he signaled his disagreement with the president's approach through the silence.

Mnuchin lost an ally of free trade earlier in the year when Gary Cohn, Trump 's first White House economic advisor, left the administration. Cohn, a former president of Goldman Sachs Group Inc., warned this month that trade disputes could erase the benefits of the Republican tax cuts passed in December. His successor, Larry Kudlow, is a self-proclaimed "free-trader" and is recovering from a heart attack.

After losing ground in steering US economic relations with China, a key position description of a US Treasury Secretary, Mnuchin chose silence to preserve his personal credibility with financial markets and even allies.

"Authorities around the world will see the secretary as a person to address for a thoughtful, rational and reasonable conversation about the challenges we face or the changes in the business cycle or multilateral policy changes," he said. said Tim Adams, former undersecretary of the Treasury. in the George W. Bush administration. "They see it as something of a point of stability."

The United States, as the world's largest economy, could be the first winners of such a regime, but an escalation of the battle may still slow down.

Emergency law

The national emergency law, called the International Emergency Economic Powers Act of 1977, will target potential investments, which means that existing investments can not be canceled, according to four people. We do not know what would happen to the transactions that have been announced but not yet completed. Treasury officials are also trying to decide on a legal definition of "Chinese entities" that would be affected.

Trump's chief commercial adviser to the White House, Peter Navarro – author of a book titled "Death by China" – laid the groundwork for intensifying what he's calling up to here " commercial conflict ".

The Navarro office has published a week A 36-page report titled "How China's economic aggression threatens technology and intellectual property of the United States and the world". The report is considered part of the evidence that the administration will use to justify investment restrictions in economic land security.

"Economic aggression"

Much of China's behavior "constitutes economic aggression," Navarro said last week during a press briefing with reporters. "It is essential both for the interests of the United States as well as for the integrity and smooth functioning of the global economy that the Chinese stop this kind of behavior."

The Treasury's decision is part of the Trump administration's Article 301 action to respond to China's alleged intellectual property theft and follows a series of tariff threats between the two largest economies.

The status of IEEPA allows the president to unilaterally impose investment limits. The Congress, in parallel, is working on reform legislation at CFIUS that would examine incoming investment in the United States for reasons of national security.

The Treasury's investment limits are seen to complement CFIUS's reform efforts, which are not only focused on China and do not limit investment for economic security reasons, said people familiar with the plans of the administration.

The Treasury limits will be rolled out in phases, meaning that all sectors of the Made in China 2025 will not be covered at the same time, informed people informed of this week's action.