How Trump’s weak dollar could backfire
The rising yuan could mean it's open season on American companies for acquisitive mainlanders
In geopolitics as in life, one should be careful what they wish for. This may dawn on Donald Trump as his desire for a stronger Chinese currency collides with his nationalist bent.
On the campaign trail, the US president rarely missed a chance to rail against what he saw as an undervalued yuan. The exchange rate, Trump said, is “raping” and “killing” us. But since his inauguration, the yuan surged more than 8%. Beijing hopes the move will shield it from Trump’s wrath. Doubtful, given this White House’s obsession with Beijing trade policies.
As the yuan rises, the desired outcome may not be what Trump hoped.
The last 12 months have been about how America is open for business again. In Davos, Switzerland last month, Trump said: “We are creating an environment that attracts capital, invites investment and rewards production.”
That was hardly news for increasingly acquisitive Chinese companies gorging on household US names well before Trump’s inauguration. The list includes AMC theatres, GE Appliances, Hoover, Ingram Micro, Legendary Entertainment, Motorola Mobility, Riot Games, Smithfield Foods, Starwood Hotels, Terex Corp. and the iconic Waldorf Astoria Hotel.
In 2016, China stunned the globe with a record $246 billion of announced outbound takeovers. Of course, 2017 was a different year for mainland dealmakers, as they faced the “America First” White House, tighter capital controls at home and wariness among some counterparties. The US drawdown has been particularly pronounced. A recent report by 451 Research’s M&A KnowledgeBase put the value of disclosed deals just under $2 billion in 2017 versus about $15 billion a year earlier.
Some of the slowdown reflects Beijing curbing capital outflows and putting a leash on its “gray rhinos.” The latter reference is too obvious dangers that are often ignored until they start running away from regulators. Beijing’s biggest targets are globally-acquisitive giants like Anbang Insurance Group, Dalian Wanda Group, Fosun Group, HNA Group and Zhejiang Luosen Neili. Trump’s zero-sum view of trade and mergers and acquisitions, meantime, is having its own chilling effect.
The rising yuan ensures these tensions will remain at a fever pitch. Chinese tycoons are anxious to buy up US icons, whether they’re eying global market share or trophy purchases. And here’s where Trump’s weak dollar policy may backfire.
A key imperative for the Communist Party is to leapfrog over the years needed to create powerhouses indigenously by scooping up established names. Case in point: Lenovo’s purchase of IBM’s computer business. Buying up energy assets is surely a priority. But the real payoff is grabbing globally-respected brands to accelerate the diversification away from smokestack industries.
China is constantly raising its sights and armed with growing purchasing power. A surging yuan, remember, makes Apple, Boeing, General Motors, Nike and United Airlines cheaper for acquisitive mainlanders. Why fear Google, Facebook and Snapchat when you can just buy them and propagandize them?
Why bother bullying the Microsoft’s, Starbucks’s and Tesla’s into joint ventures when you can make them its own? Why do the heavily-lifting and regulatory legwork to build a Chinese Goldman Sachs when Wall Street icons are there for the taking? The state also has $3.2 trillion of walking around money sitting in foreign-exchange reserves to finance a buying binge.
Over Trump’s dead body, one might say – and not without justification. Washington has already put the kibosh on mainland bids for energy companies, citing national security concerns. Odds are, the America First president will knock back as many Chinese deals as he can. Ask Alibaba’s Jack Ma how that January 2017 visit to Trump Tower worked out for him. Last month, the US rejected a $1.2 billion purchase of Moneygram International by Ant Financial.
That would put Washington in a difficult position, though. It’s hard to preach the gospel of level playing fields, openness and transparency while rejecting every headline-grabbing Chinese bid. Ditto for a president famed for the art of the business deal greenlighting none.
Still, the rising yuan increases the wherewithal of acquisitive mainland tycoons to go hunting in America. Be careful what you wish for President Trump.