Wall Street wins in GOP stalemate on China

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Sep 13, 2024 View in browser
 
POLITICO Morning Money

By Jasper Goodman and Eleanor Mueller

Presented by Citi

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With help from Ari Hawkins and Phelim Kine

QUICK FIX

Corporate America is facing growing pressure from the right to cut ties with China, but a Capitol Hill stalemate between GOP China hawks and Wall Street-friendly Republicans is sparing industry from feeling more pain.

The conflict over how to rein in U.S. capital from flowing to China is one of the great unresolved policy disputes of this Congress. It was a glaring omission this week as House Republicans passed a raft of other bills targeting the US’s biggest geopolitical adversary, in a pre-election messaging push designed to project the GOP’s tough rhetoric toward the country.

Behind the scenes, top Republicans have failed to reach a compromise on restricting U.S. investment in China despite pledging to do so late last year. Key GOP players in the clash include House Foreign Affairs Chair Michael McCaul of Texas, a leading China hawk who wants to curtail US financial support from going to whole sectors of the Chinese economy, and House Financial Services Chair Patrick McHenry of North Carolina, who has pushed for a narrower approach aimed at sanctioned firms.

With the legislative window closing for this Congress, Republicans who prefer a more aggressive policy are weighing an end-run around McHenry and others who stand in their way.

“It makes such eminent sense, I can't imagine anyone really opposing it, but obviously, it’s not been easy to do,” said Sen. John Cornyn, who has led Senate efforts to crack down on US investment in China and is vying to succeed Sen. Mitch McConnell as GOP leader.

The conflict illustrates the influence that business-friendly, establishment Republicans retain over party policy, even as former President Donald Trump and Sen. JD Vance push the GOP toward populism that is more hostile to corporate power.

“Time and time again, we see this play out wherein we have [China] legislation that is ultimately fought just because of dollar-and-cent issues,” said Heritage Foundation policy adviser Bryan Burack, who supports sectoral prohibitions like McCaul is proposing. “It is the ever-present and constant battle between the Wall Street- and financial services industry-friendly entities and the national security entities.”

A House GOP working group established late last year to iron out the differences between the two sides has failed to strike a deal, according to Hill aides granted anonymity to discuss the talks. McCaul has legislation that would target investment in areas such as artificial intelligence and quantum computing. McHenry has instead pushed for sanctions that would be applied to specific companies.

The group ramped up its efforts at the end of August in hopes of reaching consensus in time for inclusion in this week's package, according to a House Foreign Affairs Committee GOP aide. Lawmakers are now reviewing updated legislation drafted over the congressional recess, according to two other people familiar with the working group’s efforts who were granted anonymity to discuss closed-door negotiations.

But a House Financial Services GOP aide said the group is no closer to a compromise than it was at the beginning of the year. The staffer said McHenry is still committed to a sanctions-based approach, in part because it takes the onus off companies to decide themselves whether an investment might be problematic. He has stressed the need to have certainty for investors and to avoid “kneecapping one of our greatest strategic assets — our capital markets.”

McHenry told MM this week that creating “a new regime out of whole cloth will take a lot of time, and I think we’d rather use our time-tested tools that have shown to be effective.”

McCaul said in an interview that the “easy path, and most successful path” would be to advance his bill, which House Foreign Affairs approved with bipartisan support. McCaul said he hasn’t “been in the middle of” talks on the issue, which he said are “more at the staff level at this point.”

Republicans now expect GOP leadership to make a call on which policy to include in any must-pass legislation that moves at the end of the year. House Speaker Mike Johnson said in a statement that the House’s China work doesn’t end this week.

“I am fully committed to advancing further legislation addressing China-related investments and other predatory practices,” he said. “We will continue to push for measures that ensure our nation’s security in the face of growing threats.”

IT’S FRIDAY — Send your Capitol Hill tips to Jasper at jgoodman@politico.com and Eleanor at emueller@politico.com. As always, find Sam at ssutton@politico.com.

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How will digital currencies shape the future of finance? As blockchain technology advances, digital currencies are poised to disrupt traditional banking models and could redefine the global monetary landscape. Central banks are working across global stakeholders to help determine what future adoption might look like – presenting both challenges and opportunities for businesses. Explore in-depth analysis from Citi on the potential implications in the Citi GPS Report, Money, Tokens, and Games.

 
Driving the day

The University of Michigan’s Consumer Sentiment survey will be released at 10 a.m. … HUD Acting Secretary Adrianne Todman speaks at the Congressional Black Caucus’ annual conference at 11 a.m. ... House Financial Services ranking member Maxine Waters speaks at the CBC conference at 2 p.m.

NEXT TUESDAY: POLITICO’s AI & TECH SUMMIT: American Leadership, Security and Democracy — Join us on Sept. 17, from 12:00 p.m. ET, for exclusive conversations on U.S. global competitiveness, election security, AI rulemaking, TikTok-era campaigning, and what policies to expect from Harris or Trump administrations. Keynote guests include Homeland Security Secretary Alejandro Mayorkas, National Economic Council Director Lael Brainard, billionaire philanthropist Frank McCourt, Divergent CEO Kevin Czinger and Cohere CEO Aidan Gomez, Congress’s AI rule-writers Sen. Mike Rounds (R-S.D.) and Rep. Jay Obernolte, (R-Calif.), Deputy Attorney General Lisa Monaco, Biden’s chief science and tech advisor Arati Prabhakar, CISA’s election security adviser Cait Conley, Scale AI’s Michael Kratsios, Lindsey Schuh Cortes, CEO, TargetSmart, and former CTO of the DNC, and more. RSVP required to attend or watch here.

FDIC weighs vote next week on softened bank capital rulesA scoop from Eleanor and our Michael Stratford: The FDIC is eyeing a potential vote next week on a scaled-back plan to boost bank capital requirements, according to two people familiar with the plans, but it’s still not clear if the new proposal has enough support to pass.

While the FDIC has tentatively set a vote on the capital re-proposal, the plans remain in flux and could change, those people said. An FDIC spokesperson declined to comment.

Election gambling goes mainstreamOur Declan Harty reports that election betting got its big debut Thursday after the financial exchange startup Kalshi got the green light Thursday to begin offering day traders, wannabe political pundits and financial institutions the chance to wager thousands of dollars on whether Democrats or Republicans will control Congress next year.

The Silicon Valley-backed company debuted the first fully regulated election-betting markets in the U.S. shortly after District Judge Jia Cobb in Washington rejected a bid by Wall Street regulators to temporarily block the company from launching them. The CFTC says the markets violate federal and state law. The agency quickly appealed the judge’s ruling, and, last night, the appellate court halted Kalshi’s markets so that the judges could review the CFTC’s motion for a stay pending the appeal.

The election betting expansion drew fierce opposition from some lawmakers. Sen. Jeff Merkley (D-Ore.) called it a “nightmare” scenario that could allow wealthy players to put their “thumb on the scale” in elections.

But other Democrats are supportive of election betting. Rep. Ritchie Torres (D-N.Y.) wrote in a letter to the CFTC Thursday obtained first by MM that regulators should work “toward a plan for regulating these markets, rather than preventing them from existing in regulated markets.” The CFTC said it will review the letter, but declined to comment further on it.

Rate cut watch — The European Central Bank cut its key deposit rate by 0.25 percentage point to 3.5 percent, responding to a drop in inflation and increasing signs of weakness in the eurozone economy over the summer, our Johanna Treeck reports from Frankfurt. The central bank offered few clues as to how much further it will ease policy over the rest of the year, saying rather that it “will continue to follow a data-dependent and meeting-by-meeting approach.

 

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Crypto

Trump to announce launch of crypto venture Monday — Donald Trump plans to unveil his family’s cryptocurrency venture next Monday at 8 p.m. on X, he said Thursday. “We are embracing the future with crypto and leaving the slow and outdated big banks behind,” he said in a video posted on his X account. Trump’s sons have been teasing the project, called World Liberty Financial, on social media, but its rollout has been marred by scams in recent weeks.

More scrutiny on TetherA conservative group is launching new attacks aimed at the stablecoin issuer Tether, which has been linked to an array of illicit finance scandals around the globe. Fox Business reports that the group, Consumers’ Research, is sending a letter to every governor that takes aim at Tether as part of a campaign it is running attacking the company.

A message from Citi:

How will digital currencies shape the future of finance?

As blockchain technology advances, digital currencies are poised to disrupt traditional banking models and could redefine the global monetary landscape – presenting both challenges and opportunities for businesses.

Blockchain-based products can make a significant impact in terms of wide consumer adoption in digital currency, especially central bank digital currency (CBDCs), gaming, and social. Momentum on adoption has positively shifted as governments, large institutions, and corporations have moved from investigating the benefits of tokenization to trials and proofs of concept.

Explore in-depth analysis from Citi on the potential implications in the Citi GPS Report, Money, Tokens, and Games.

 
Regulatory Corner

Treasury unveils new corporate minimum tax plan detailsThe Treasury Department on Thursday released new details of how Democrats’ 15 percent minimum tax on big corporations will work, our Brian Faler reports. The agency unveiled hundreds of pages of proposed rules explaining the levy, the biggest step yet in what’s been an unusually labored rollout of a tax approved by Congress more than two years ago.

eToro to pull back on U.S. crypto offering under settlement Declan reports that the SEC said Thursday that brokerage firm eToro will pay $1.5 million and significantly pull back from the cryptocurrency markets for allegedly violating investor-protection laws. Since 2020, eToro has allowed U.S. customers to trade crypto tokens that were being offered and sold as securities even though the company was not registered with the SEC as a broker and clearing agency, the agency alleged.

Navient, CFPB reach $120M settlement Navient has agreed to pay $120 million to resolve CFPB allegations that for years it illegally serviced federal student loans, ending a high-profile case that spanned three presidential administrations, our Michael reports. The settlement, filed in court on Thursday, also bans the company from servicing federal student loans again in the future.

 

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