The global economy is reeling from the coronavirus pandemic. The last thing it needs now is for the smoldering trade war between the world’s two largest economies to escalate. Yet the US administration seems prepared to take that risk. The White House this week fired what could become the first shot in a new financial fight. US labor secretary Eugene Scalia wrote to the board overseeing a pension fund for 5.9m present and retired federal employees saying President Donald Trump was directing them to halt plans to allow the fund to invest in shares of Chinese companies. The nearly $6oobn Thrift Savings Plan was due shortly to shift its $4obn I Fund, which invests in international equities, from an MSCI developed-country index into an all-world index that includes Chinese stocks. The pension board on Wednesday delayed the move. The White House, meanwhile, is taking steps to replace three of its five directors.
There are strong arguments that a federal workers’ pension fund should not invest in Chinese businesses, some of which are accused of human rights abuses, assisting Beijing’s “surveillance state”, or posing national security risks to the US. Chinese companies are also not subject to the same disclosure rules as US stocks. Some lawmakers have been pushing the board and the White House to halt the pension fund move.
It is a mistake, however, to link this issue with the intensifying blame game over coronavirus that Mr Trump is engaged in with Beijing – including his suggestion that the US might demand financial compensation from China for the pandemic. The president last week called the virus an “attack” on the US similar to those on Pearl Harbor and the World Trade Center. Mr Scalia’s letter to the pension board cited another from Mr Trump’s economic and national security advisers that warned Chinese investments were risky since there was a “possibility that future sanctions will result from the culpable actions of the Chinese government” related to the spread of the virus.
The US president is right to press China to be open about the origins of COVID- 19. The Beijing government can be rightly criticized, too, for its early cover-up that slowed efforts to contain the virus. Yet other countries and leaders, not least Mr Trump himself, have made serious errors that worsened the pandemic. Claims that China should carry the costs of a chance outbreak are nonsensical. They push Beijing instead to clam up over the virus and step up its own aggressive counter-diploma.
Entwining such claims with restrictions on investing in Chinese equities risks spooking markets or causing January’s “phase one” trade deal with Beijing to unravel. Taking such action against the second-biggest foreign holder of US Treasuries when Washington is preparing to issue trillions of dollars of extra debt