In a Bind

Belgius Capital Commentary

Belgius Capital

In a Bind

Following the results of last weekend’s local elections in Hong Kong, where an unprecedented turnout overwhelmingly supported pro-democracy leaders, it now looks like the situation in Hong Kong will put Trump in a difficult bind as he has to choose between appeasing the Senate or appeasing China.

Lawmakers on Capitol Hill have cornered the US President with controversial legislation that places him in a situation where he has to pick between two equally unpleasant courses of action. Either he supports the Senate’s pro-Democracy bid for Hong Kong, which is the very bastion of American ideals, or he sticks it out with Beijing and keeps the Chinese at the negotiation table. Either or, choosing one will inevitably aggravate the other.

Last October, the US House of Representatives passed legislation in support of the pro-democracy demonstrators in Hong Kong, and Beijing was quick to warn that should the measure move forward, China will have little option but to retaliate. This comes as an extremely sensitive issue as it meant interfering with China’s ‘internal’ affairs and one that they are determined to face head-on with the US if only to make it crystal clear and send a message of noninterference in its domestic affairs. For obvious reasons, a Capitol Hill intrusion will imperil already beleaguered US-China trade negotiations.

Four weeks after, the US Senate passed a broadly similar measure, one that is waiting to be reconciled with the House before it is sent to Trump. The message is now unambiguous - there is overwhelming support in Congress to acknowledge measures supporting Hong Kong’s autonomy - and one that Trump cannot simply sweep under the rug. It also sends the message that the US legislative body is committed to democratic norms and is willing to act if necessary.

But at what cost? Trump’s embarrassment at some point.

This also means one thing - the Senate and the House would prefer to support legislation to embarrass Trump.

China’s foreign ministry immediately called for steps from Washington to make sure this does not become a law. In other words, President Xi is calling on Trump to step in and nip it in the bud. It also means reminding the US President of an understanding they had during a June phone call when the two leaders agreed to remain “quiet” on the Hong Kong situation.

That is where the pressure currently mounts for Trump right now. As far as the markets are concerned, the bulls still have it, and the Hong Kong issue is the least of their worries. Why? What can President Xi gain from retaliatory trade measures when the US is one of their biggest markets. And the White House really has no choice given the overwhelming support for a Hong Kong Bill.

Trump’s game plan now is minimum embarrassment as he is really pushed to the wall on this one. Or better yet, deflect the issue on something else, like Hilary, the impeachment shenanigans, or maybe even try to disparage the just announced Presidential candidate Michael Bloomberg. Meantime US financial markets continue to set record highs.

What a conundrum.