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Prior to Friday’s tumultuous events, President Trump appeared to show some grace regarding the U.S.-China trade war. Most notably, Trump delayed a scheduled ramp in tariffs to allow the Chinese people to celebrate their republic’s anniversary.

And it wasn’t just a one-sided affair either. Earlier this month, China extended their own modest olive branch, revealing a short list of products that won’t feel the tariff pain. With scheduled talks between high-level negotiators coming in a few weeks, the easing of tensions boded well for a deal.

But like anything with this administration, nothing is for certain. On Friday, the White House made a stunning announcement: they’re weighing the option to delist publicly traded Chinese companies from U.S.-based exchanges.

To put it bluntly, this might be the kick in the nuts that escalate the trade war to another dimension. Prior to this shocking development, both the U.S. and China operated under economic mutually assured destruction: no one wanted to do anything rash because it would upset the global economic dynamic.

Now, President Trump is signaling that he doesn’t care for politics as usual. To be fair, that was a major component of his 2016 election campaign. But to actually impose it at the highest level is jarring, even for jaded political observers.

In politics, you’re supposed to break promises, not keep them.

 

Trade War Resolution an Uncertainty Now

Undoubtedly, delisting Chinese companies from U.S. exchanges is a major risk, but not in the way you might imagine.

For instance, China’s flagship company is Alibaba Group. Technically, you can purchase shares because they’re listed on the New York Stock Exchange: it doesn’t get any bigger than that.

However, Alibaba investors don’t have any equity stake in Alibaba. Ironically, that’s because Chinese law forbids foreigners from owning “strategic assets” of the Asian juggernaut. To get around this, China creates a variable-entity interest: in short, you’re buying a Cayman Islands-based company who promises to give you the profits off your investments, but without actually owning Alibaba.

While the ruse is completely legal, it’s also complete BS. Thus, what Trump is doing actually seems reasonable: if you’re gonna list in our exchanges, you’re going to legitimately list there. If not, GTFO, as the kids like to say.

So no, the delisting by itself isn’t the real issue. Instead, it’s the open disrespect that the President is communicating to China. A very sensitive nation seeking credibility, this action sends the message that China is a second tier to the U.S.

That’s not something the Chinese want to hear. Therefore, unless something dramatically positive occurs, the trade war is again back in the hot seat.

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