Some US pension funds play into China’s hands: Pompeo

Bloomberg

Secretary of State Michael Pompeo delivered a tough warning about China in a speech to US governors, urging caution in business dealings as Beijing looks for ways to exploit US vulnerabilities and expands repression at home.
He had a pointed message for certain US state pension funds that may be investing in ways that help China’s government crack down on its Muslim minority, or even put US military personnel at risk.
“As of its latest public filings, the Florida retirement system has invested in a company that in turn has invested in surveillance gear that the Chinese Communist Party uses to track more than 1 million Muslim minorities,” Pompeo said at the National Governors Association’s winter meeting in Washington.
California’s pension fund, the country’s largest, “is invested in companies that supply the People’s Liberation Army,” Pompeo said without providing specifics. “That puts our soldiers, sailors, airmen and Marines at risk.”
The world’s second-largest economy is further embracing repression under President Xi Jinping, Pompeo said in a continuation of the commentary about Beijing that was a feature of his recent trip to Europe and Central Asia.
“Competition with China is happening inside of your state and it affects our capacity to perform America’s vital national-security functions,” the top US diplomat said. “Competition with China is not just a federal issue.”
Pompeo said US engagement with China at the end of the Cold War was based on the assumption that it would turn towards becoming a liberal democracy. “It didn’t happen,” Pompeo said. “Under Xi Jinping the country is moving exactly in the opposite direction: more repression, more unfair competition, more predatory economic practices, and indeed a more aggressive military posture as well.”
He added that those trends don’t mean the countries can’t do business, citing the recent “Phase One” trade deal between China and the US and prospects for a second round.
Chinese officials in the past have pushed back aggressively on US criticism — including those by Pompeo — as interference in the country’s domestic affairs. Chinese embassy in Washington had no immediate comment on his comments.
Pompeo also said China’s government wants to exploit US freedoms to gain advantage at the federal, state and local levels.
“I’m asking you to adopt a cautious mindset,” Pompeo said. “In the words of President Reagan, when you are approached for introduction or a connection to a deal, ‘trust but verify.’”
As an example, Pompeo said there had been concerns that the District of Colombia had considered buying railcars from a Chinese state-owned company for its Metro transit system. The move, which was never finalised, was scuttled after Congress passed a law prohibiting such purchases on cybersecurity grounds.
A government-backed think tank in China has assessed governors of all US states as friendly, hard-line or ambiguous toward it, Pompeo said.
“I would be surprised if most of you in the audience have not been lobbied by the Chinese Communist Party directly,” he added.
In London on January 30, Pompeo, a former US Central Intelligence Agency chief, said China’s Communist Party “presents the central threat of our times.” In Kazakhstan on February 2, he denounced China’s human rights abuses.
Pompeo’s comments align him with Vice President Mike Pence but contrast with President Donald Trump’s recent conciliatory language towards China.
Trump on Friday tweeted that he’d had a “long and very good conversation by phone” with Xi about China’s response to the coronavirus. “President Xi strongly leads what will be a very successful operation.”
Just had a long and very good conversation by phone with President Xi of China. He is strong, sharp and powerfully focused on leading the counterattack on the Coronavirus. He feels they are doing very well, even building hospitals in a matter of only days. Nothing is easy, but…
Beyond posing a security risk, Pompeo said the lack of transparency was an issue for U.S. investments in China.
“Their books are not wide open, so it’s difficult to know if the transaction that’s being engaged in is transparent and fair and follows the rule of law,” he said. “All of these things may well be legal, but the question is do they demonstrate good judgment and preserve America’s national security.”

Summers worries US tax cuts may lead to financial trouble
Bloomberg

Reductions in the US corporate-tax rate in 2018 didn’t result in much more investment, said former US Treasury
Secretary Larry Summers, who is concerned about the economy running into “financial trouble.”
“There is no evidence of any kind that we have seen any substantial increase in investment because of cutting the corporate tax rate to 21%,” Summers, who was Treasury secretary under President Bill Clinton and White House economic adviser to President Barack Obama, said in an interview on Bloomberg Television’s Wall Street Week.
“I’m more worried that we’ll get ourselves into financial trouble again some time in the next several years than I have been any time in a very long time.”
In 2017, Republicans passed legislation that trimmed the top corporate tax rate from 35% and it’s now at 21%.
In 2018, the reductions, coupled with higher spending, helped extend the U.S. economy’s expansion in the years since the financial crisis.
Budget Deficit
The U.S. budget deficit is poised to exceed $1 trillion under President Donald Trump, even as he had promised to eliminate it. It could swell even further if Democrats win the Oval Office in November, as leading candidates are pitching voters with spending plans that would add billions more.
The Trump administration is focused on providing another round of tax cuts to the middle class as early as 2020, but the reduction is not intended as a stimulus to ward off a downturn, Larry Kudlow, the current White House economic adviser, said in September. Trump will announce “tax cut 2.0” proposals during his re-election campaign, he said Feb. 4 on Fox Business.
Summers doesn’t favor fiscal proposals announced by Democratic presidential candidates like Bernie Sanders and Elizabeth Warren, who have floated trillions of dollars in tax increases to pay for universal health care.
The approach “acts like there’s no constraint on how much the government can spend, that the government can add up its spending by literally tens of trillions of dollars,” he said. “That there’s no limit to how high the taxes that can be placed on affluent people are. That thinks the only issue is tearing down the people who are most successful in our country. I don’t think that’s nearly as productive an approach.”
Summers, who is a paid contributor for Bloomberg Television, said more needs to be done to share success.
“But is the objective to really regard somebody who does enough stuff to make $1 billion almost a criminal as Senator Sanders suggests? I don’t think those are the values of the American people. I don’t think those are values that will help our economy succeed.”