In November, President Trump signed an executive order that bans U.S. investments to companies linked to the Chinese military. Last week, Secretary of State Mike Pompeo released a press statement acknowledging the expansion of the executive order to include subsidiaries as well.
The order is an attempt to protect U.S. investors from a “national security threat” and keep U.S. capitol from funding the Chinese military, technology, and security.
Secretary of State Pompeo’s recent statement clarifies that Trump’s Executive Order bars the ownership of any Communist Chinese military companies (CCMCs) shares by exchange-traded funds (ETFs) and index funds, in addition to any of their 50 percent or greater majority-owned subsidiaries that are publicly listed by the Treasury or Defense Departments.
“President Trump took decisive action last month to protect American investors and pension holders from funding Communist Chinese military companies (CCMCs) through Executive Order (13959) Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies,” the statement read. “The Trump Administration is coordinating closely to counter the threat these companies present to the economy and national security of the United States.”
In November’s executive order, Trump expressed concern over China’s exploitation of the U.S. economy.
“The People’s Republic of China (PRC) is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses,” wrote President Trump. “Which continues to allow the PRC to directly threaten the United States homeland and United States forces overseas, including by developing and deploying weapons of mass destruction, advanced conventional weapons, and malicious cyber-enabled actions against the United States and its people.”
“Beginning on January 11, 2021, U.S. investors will no longer be able to transact in publicly traded or private market debt or equity securities, or any securities that are derivative thereof, regardless of the percentage ownership of CCMCs, with full divestment required by November 11, 2021,” the statement said.
As additional Chinese military companies are identified, U.S. persons or entities will have up to 60 days from the date of that determination to divest. Transactions or conspiracies to evade or avoid the executive order are prohibited, and it directs all agencies, including specifically the Secretary of Treasury, Secretary of Defense, and the Director of National Intelligence, to take appropriate actions within their authority to implement regulations and orders to carry out the executive order.
The order is predicted to certain effects on the U.S. supply chain as government contractors divest in Chinese covered companies.
Although the executive order goes into effect right before the end of Trump’s presidential term, Present-Elect Joe Biden plans to continue dealing with China in a similar manner after he is inaugurated on January 20th.