U.S.-China relationship 'going down a path of great confrontation,' analyst says

Tensions between the U.S. and China are likely only to worsen under the Biden administration, according to Raymond James Managing Director Ed Mills.

"This kind of relationship is going down a path of great confrontation," said Mills, who is also the financial services firm's Washington policy analyst. "I think we are going to see an increase in the conversation about the decoupling and more conversations about 'Are we going into another Cold War between these two economies?'"

Mills specifically cited the combination of the U.S. Senate recently passing an expansive bill to invest a quarter of a trillion dollars in boosting domestic manufacturing to compete with China and President Joe Biden signing an executive order expanding a Trump-era ban on U.S. investment in Chinese companies with purported links to China’s military.

"We've effectively weaponized our capital markets," Mills told Yahoo Finance Live (video above). "Going forward, we continue to believe that China is going to retaliate."

The pressure is already building, he noted, with China last week passing a new "anti-foreign sanctions law" that forces companies with operations in China and the U.S. to choose between complying with either country's sanctions. 

“Do you want to stand up to human rights in China, or do you want cheap solar panels?” Francine Sullivan, the vice president for business development at REC Silicon, a polysilicon maker based in Norway with factories in the U.S., told The New York Times to illustrate the dilemma facing companies who rely on China's massive consumer market.

If companies choose to comply with U.S. sanctions on China, they could incur sanctions in China.

"Directionally, this has absolutely continued what started under the Trump administration," Mills noted. "And you could see some of these policies have more bite as they get fleshed out under the Biden administration."

Three things the market's watching

Meanwhile, the market will be paying attention to several upcoming geopolitical events: The North Atlantic Treaty Organization (NATO) meeting, any further updates on the relationship with China, and Biden's meeting with Russian President Vladimir Putin.

"The market is still going to look at these meetings quite closely," Mills said. "The first thing that the market will look at is: What does the NATO Alliance look like under a President Biden? How much do the other countries continue to commit to fulfilling their defense spending initiatives, and how much does the United States spend on defense?"

The market is also watching "how much does the United States get to re-change the conversation related to China," Mills said. "We've seen a number of hawkish stances from the Biden administration, continuing a lot of the stances of the Trump administration."

The other big piece is Biden's meeting with Putin. 

"How much do we have to continue to be concerned about cyber attacks, ransomware attacks, especially as those attacks are focused on the reopening trade?" Mills said. "We had [an] impact on fuel and impact on food and impact on some travel. Does that continue or does that get ramped up or is President Biden able to convince President Putin… [that] there are real consequences and therefore some of this slows?"

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.

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