Soon it will be us or them

that day is coming

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This was supposed to be the week U.S.-China trade talks got back on track and the two sides found a way to avoid sending more unsettling signals to financial markets and a global economy that looks increasingly fragile.

But that didn’t take long to change. If the state of relations between the world’s two largest economies was a tangled mess before the latest round of Chinese negotiations get underway Thursday and Friday, the tangle has only gotten worse.

Here’s a reality check:

Trump’s War on China Keeps Broadening

The move on Monday to blacklist Chinese tech giants like video surveillance company Hikvision

and the world’s most valuable artificial intelligence startup, SenseTime, took the Trump administration’s economic wars against China in a new direction.

Not only did the U.S. provocatively invoke its right to address human rights violations “within China,” as Commerce Secretary Wilbur Ross did, it also targeted a new swathe of Chinese technology champions. The stated reason was the companies’ involvement in China’s crackdown on Muslim minorities in the region of Xinjiang, but the move also strikes a blow against sectors like AI where China is increasingly dominant. Adding to the frictions, the U.S. is slapping visa bans on Chinese officials linked to the abuses in Xinjiang.

That came alongside more news Tuesday that, despite White House denials, the conversation over how the U.S. can restrict financial flows into China continues. The focus is narrowing to how to pressure index companies like MSCI and Bloomberg Barclays to reduce the weighting Chinese companies get in emerging market indexes. Also under discussion is how to limit federal government retirement funds from investing in China.

But there is a barely hidden goal behind both moves. China hawks inside the administration and on Capitol Hill want to restrict Chinese access to U.S. technology and capital. That isn’t going away.

The Anti-China Drums Beat Louder and Louder in Washington

People close to the Trump administration have long acknowledged the narrow path they have to a deal with China. Any China deal betraying weakness by the Trump administration will be lambasted both by Democrats and Republicans. From the other side, even hawks in Washington recognize there is a limit to what China will commit to.

For evidence of what the potential political reaction to a weak China deal would be just look at the Republican backlash against this week’s moves to withdraw U.S. forces from Syria and abandon Kurdish allies. If Republicans see that as an unacceptable reversal imagine what hawks like Senator Marco Rubio would make of any broad compromise with a far bigger strategic rival in Beijing.

What’s newest, though, is how the popular conversation about China is spreading.

The moves against Chinese tech companies reflect growing bipartisan anxiety in Washington about China’s crackdown in Xinjiang. But it’s the worsening situation in Hong Kong that is really helping to crystallize things.

Conservatives have long seen Hong Kong as a bastion of relative economic liberty inside Communist China and been early backers of the protests there. So too have Democrats, albeit generally for broader reasons related to human rights. That’s one big reason that a bill that would remove Hong Kong’s special trade status has plenty of backing on Capitol Hill and could pass through Congress within weeks, presenting Trump with a dilemma over whether to sign it into law.

The other reason that bill looks like an increasing certainty is the shift of those China concerns into popular culture. China’s angry response -- and the NBA’s subsequent bending to Beijing -- following a Houston Rockets executive’s tweet backing the protests in Hong Kong has already fed further anger about how American companies often have to kowtow to do business in China. Now Chinese sponsors of NBA events are cutting ties to the league. Reinforcing the shift is the fact it comes alongside comedy show “South Park” getting caught in the Chinese censor’s net.

The economic wars, in other words, are becoming culture wars.

The Economic Damage is Growing

Until this summer the notion that Trump’s trade wars would prove damaging to the U.S. and global economies was largely that -- notional. But the data in recent months have been clear. You can quibble with the exact mix of causes, but you only have to speak to businesses to see the evidence building that Trump’s tariff wars and the uncertainty caused by them have contributed significantly to slowdowns in business investment and manufacturing.