American Flag Lowered at U.S. Consulate in Chengdu, China

The lowering of the American flag from the consulate in Chengdu caps a week in which U.S.-China relations spiraled to new lows, engulfing global markets and businesses.

For months now, ties between the world’s two biggest economies have been marred by allegations of espionage and intellectual-property theft, a blame game over the coronavirus pandemic, criticism of China’s tightening grip over Hong Kong and its treatment of Muslims in Xinjiang along with sanctions and restrictions on the flow of goods, technology and people.

Chinese authorities took over the American mission in the southwestern Chinese city Monday, less than three days after the U.S. government forced their Chinese counterparts out of their consulate in Houston. The evictions follow a provocative speech from Secretary of State Michael Pompeo in which he said “securing our freedoms from the Chinese Communist Party is the mission of our time.”

The tensions have helped snap a bullish run for markets on both sides of the Pacific, with the dollar dropping, gold rising and stocks falling Friday -- and starting the new week mixed.

Arthur Kroeber, a veteran watcher of China’s economy and a founding partner at research firm Gavekal Dragonomics, summed up Pompeo’s speech like this: “If this barrage of rhetoric does not qualify as a declaration of intent to wage cold war, it is hard to know what would.”

Global businesses -- which have been navigating the U.S.-China trade war for two years now -- are being swept up in the latest escalation. U.S. Attorney General William Barr said this month that companies including Walt Disney Co. and Apple Inc. have become pawns of China, while President Donald Trump said he was considering banning ByteDance Ltd.’s short video app TikTok as retaliation over China’s handling of the coronavirus.

Chinese President Xi Jinping’s government has retaliated with measures that include unspecified sanctions on defense contractor Lockheed Martin Corp. after the U.S. approved a possible $620 million deal to supply missile parts to Taiwan. And it has threatened to blacklist companies over other issues too.

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