How one Trump tweet could disrupt the U.S.-China payments corridor

It's unclear whether the Trump administration can or will declare a national emergency as part of the trade dispute between the U.S. and China, but the discourse alone could disrupt major business relationships that involve American retailers, payment companies and Chinese firms.

But the lack of conventional policy may not matter. Trump's initial tariff announcements directly impacted existing payment agreements for supply chain finance and B2B payment companies. Trump's social media pronouncements place more pressure on these deals, even if the public posturing does not correspond to literal policy.

Trump on Sunday floated declaring the trade war a "national emergency," a move that could be designed to give legal cover to Trump's earlier social media pronouncements, ordering U.S. businesses to immediately start looking for an alternative to China.

Andrew Harrer/Bloomberg

Trump cited the Emergency Economic Powers Act of 1977 as justification for his directive. The law Trump referenced mostly applies to hostile non-trading partners and requires congressional input, so it's likely Trump cannot order businesses to change their China policies by executive order. Trump has also made threats in the past without following through that would have impacted the payments industry, such as his call to suspend remittances between the U.S. and Mexico as a way to motivate Mexico to pay for a border wall.

Collaborations between U.S. firms and Chinese firms that involve payment processing or retail technology abound, often including massive international brands.

For example, Apple has a collaboration with Alipay to support Siri in China. Starbucks has a partnership with Ele.me, an Alibaba food delivery subsidiary. Starbucks also has a payment relationship with Tencent that goes back at least four years, and the Seattle chain is testing a new retail experience in Beijing.

Chinese tourists and business travelers frequently spend money in the U.S., fueling business for merchants that partner with firms such as Alipay to enable payments for these travelers. Any political move that cuts investment could impact these relationships. U.S.-based merchant acquirers also work on behalf of Chinese payment companies including Alipay, WeChat Pay and UnionPay.

The Trump administration's public statements were partly in response to China ratcheting up the stakes in the trade dispute by announcing its intent to place more tariffs on U.S. goods. Since China's not a democracy, it can move faster than the U.S. and make sweeping changes in policies that could make it harder for U.S. and Chinese companies to work together.

Whether the change or pressure comes from the U.S. or China, the heat on payment companies is real.

"These businesses cannot reconfigure their supply chains on the spot," said Marwan Forzley, CEO of Veem, a cross-border payments company that counts Google and Goldman Sachs among its investors. "This is putting stress on the business community and this is going to go on for a while until these issues are settled."

Veem earlier this year introduced a relief program that reimburses companies up to $1,000 per year for tariff costs on good imported from China and paid through Veem's gateway.

The impact of the trade war is creating challenges for smaller businesses, while the rhetoric causes more pressure even if there's no specific policy, he said, adding these companies may redirect their payment flows no matter what happens.

"Some of these businesses are going to find new suppliers, and that's going to take time to go through," Forzley said.

The U.S. payments industry has faced challenges in China that predate Trump's involvement. China for years has wavered on regulatory policy toward outside firms such as Mastercard and Visa, which both are attempting to build a domestic payment market in China.

Starbucks, Mastercard and Visa did not return requests for comment on the Trump administration's public messaging over the past few days, but any retaliatory move from China would almost certainly create a harder road for the U.S. card brands.

"Even if, improbably, China at long last genuinely opened up the world's second-largest electronic payments and largest e-commerce markets, it's too late," said Eric Grover, a principal at Intrepid Ventures. "Three domestic payment networks — UnionPay, AliPay and WeChat Pay — utterly dominate the market. Foreign payment networks have no plausible path to credit mass and therefore relevance for Chinese consumers, banks and merchants."