Wall Street dodged the carnage of the U.S.-China trade war, but it could be among the biggest losers from the latest flashpoint between the two nations -- and it’s struggling to mount a defense.

Financial firms’ angst is focused on legislation pending in Washington that threatens to kick Chinese companies, including widely held behemoths like Alibaba Group Holding Ltd. and Baidu Inc., out of American stock markets. The crackdown, which U.S. lawmakers say will protect investors from fraud and safeguard national security, would impact much of the financial industry.

The New York Stock Exchange and Nasdaq Stock Market are fretting about losing listing fees. Giant asset managers are worried about the effect on emerging market indexes and exchange traded funds that they sell to investors. And investment banks that take companies public are concerned that it might be too late to mobilize against the bill, which gained significant headway last month when the U.S. Senate approved it unanimously.

Tight-Lipped Executives
With perhaps billions of dollars in revenue at stake, it’s surprising how tight-lipped Wall Street has been about the push to impose the tougher restrictions. Financial executives say their hesitancy to speak out stems from how widespread the hostility toward Beijing has become on Capitol Hill, particularly with the backdrop of a bitter presidential election.

Lobbying against the bill arguably means siding with Chinese companies over U.S. investors, a position that would anger Republicans and Democrats. But if the legislation clears the House and is signed by President Donald Trump, U.S. financial companies might be among the businesses that bear the brunt of any reprisals from Beijing. Firms also fear an escalating tit-for-tat between the countries that could bring even costlier policy changes.

“Tensions are very high,” said Shaswat Das, an attorney at King & Spalding in Washington who previously worked for the Public Company Accounting Oversight Board -- the regulator that’s at the heart of the dispute over Chinese companies listed on American exchanges. “It’s sort of like a perfect storm for legislation like this to be passed.”

The strains are especially dicey for firms such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and BlackRock Inc. that have charged ahead with plans to expand their businesses in China. They’ve been lured by the chance to make inroads into the nation’s $47 trillion financial industry, which serves the fastest-growing cohort of millionaires on earth. China this year allowed Wall Street to apply for full ownership of its local ventures, a major step in opening up to foreign firms.

This overview of how stock exchanges, banks and mutual-fund companies are grappling with rising friction between the world’s two biggest economies is based on interviews with more than 15 executives, lawyers and government officials. Most asked not to be named to avoid blowback from U.S. lawmakers and the Trump administration, which has clashed with China over trade policy and blamed it for the coronavirus pandemic.

Surprised Senators
The Senate bill, which took the SEC and even some members of Congress by surprise when it passed without debate on May 20, would prohibit Chinese companies from trading in the U.S. if PCAOB inspectors aren’t allowed to review their auditors’ work for three consecutive years. The businesses would also have to certify that they’re not controlled by China’s Communist Party.

China has long refused to let the audit regulator scrutinize its accounting firms. Despite not adhering to that regulation, there are more than 200 Chinese corporations that have been allowed to trade on U.S. exchanges, according to the PCAOB. Their market capitalization is roughly $1.8 trillion, with Alibaba making up about one-third of the total.

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