• by Thom Forbes , June 25, 2018

As the European Union and China warned in a joint media briefing in Beijing this morning that their escalating trade wars with the United States could lead to a global recession, multiple outlets are reporting that the Trump administration will announce tighter restrictions on Chinese investment in U.S. technology companies, as well as plans to block further exports to that country.

“The twin initiatives, set to be announced by the end of the week, are designed to prevent Beijing from moving ahead with plans outlined in its ‘Made in China 2025’ report to become a global leader in 10 broad areas of technology, including information technology, aerospace, electric vehicles and biotechnology,” reports Bob Davis for the Wall Street Journal.

Restricting investment in “sectors from aerospace to robotics … could have even greater long-term consequences for the economic relationship between the U.S. and China than the escalating tit-for-tat tariff war, according to experts, and mark one of the biggest changes to the U.S.’ open investment regime in decades,” writes Shawn Donnan for Financial Times.

It could even “put the brakes on the electric scooter startup boom,” warns Quartz. “Silicon Valley’s scooter startups, which have exploded across the country over the past six months, depend largely on Chinese-made vehicles. That makes them … vulnerable as the Trump administration threaten billions more of tariffs on Chinese goods,” Josh Horowitz writes.

“The move is likely to put a further chill on Chinese investment in the U.S. According to the Rhodium Group consultancy, Chinese foreign direct investment in the U.S. plunged more than 90% to just $1.8 billion in the first half of 2018 compared with the same period last year. In 2016, Chinese companies made a record $46 billion in foreign direct investment in the U.S.,” FT’s Donnan continues.

“The exact scope of the investment measures has been the subject of internal discussions in the Trump administration in recent days, say people familiar with the debate. It is unclear how quickly restrictions would take effect and if they would apply to Chinese investments in venture capital funds, which provide much of the seed money for U.S. technology start-ups.”

This morning, “China and the European Union vowed to oppose trade protectionism in an apparent rebuke to the U.S., saying unilateral actions risked pushing the world into a recession,” Bloomberg News reports.

“Vice Premier Liu He — president Xi Jinping’s top economic adviser — said China and the EU had agreed to defend the multilateral trading system, following talks Monday in Beijing. The comments, made at a press briefing with European Commission vice president Jyrki Katainen, come as both sides prepare to face off against U.S. President Donald Trump’s tariff threats,” the report continues.

“Unilateralism is on the rise and trade tensions have appeared in major economies,” Liu said. “China and the EU firmly oppose trade unilateralism and protectionism and think these actions may bring recession and turbulence to the global economy.”

For all the President’s fiery rhetoric, “what key lessons has China learned thus far?” asks Ling Chen, an assistant professor at the School of Advanced International Studies at Johns Hopkins University and the author of Manipulating Globalization: The Influence of Bureaucrats on Business in China, in the Washington Post. 

“Most likely, the Chinese leadership has recognized the vulnerability of the country’s development approach. The paradox is that the current trade war might propel China to come up with more ambitious industrial strategies,” she writes, offering three arguments to consider. 

Meanwhile, in the all politics — and news — is local front, the New York Times’ Ana Swanson has a piece this morning about the possible impact of a trade war with China on dairy farmers and cheesemakers in rural Wisconsin.

“If export markets get shut off, I could see us getting to the point where we’re dumping our milk in the fields,” Jeff Schwager, the president of Sartori Company, which has produced cheese … for generations with milk it purchases from more than 100 dairy farms throughout Wisconsin, tells Swanson. “It’ll be a big ripple effect through the state.”

Swanson’s larger premise is that ramifications of the Trump’s protectionist promise to put America first “are beginning to be felt in the towns and counties that elected him, as the downsides become more evident than any upside.”

And no downside would be more evident than a recession caused by trade wars, the European markets appear to be telling us this morning.