President Trump was right to move carefully with China at the start of his second term. Strategy sometimes requires patience. The United States entered 2025 with dangerous vulnerabilities in rare earths, pharmaceuticals, advanced manufacturing inputs, and supply chains that had been recklessly outsourced over decades. A sudden financial rupture with Beijing before those weaknesses were addressed would have risked real harm to American industry and national security. On this point, restraint was not weakness. It was prudence.
But prudence has a shelf life. What begins as strategic patience can quietly turn into moral failure if it becomes an excuse for inaction. That is where we are now. The United States continues to allow Chinese companies to raise enormous sums on U.S. stock exchanges even though our own regulators know that most of these companies cannot meet the most basic audit standards required of American firms. More than $1T of American capital is now exposed. Much of it belongs to retirees, teachers, union workers, and ordinary savers who believed that a listing on a U.S. exchange meant something. When it comes to Chinese companies, it no longer does.
Congress anticipated this problem. That is why it passed, and Trump signed the Holding Foreign Companies Accountable Act in 2020. The HFCAA was not a partisan stunt. It passed the Senate unanimously and the House without objection. Republicans, Democrats, and President Trump agreed on a simple principle. If a company wants access to U.S. capital markets, it must submit to U.S. audit inspections. There are no exceptions for national champions, state secrets, or geopolitical sensitivities. Access to our markets is a privilege, not a right.
The law was aimed squarely at China. For years, Beijing had blocked the Public Company Accounting Oversight Board from inspecting Chinese audit firms, citing state secrecy laws. The result was a two-tier system. American companies faced rigorous inspections. Chinese companies faced none. The Luckin Coffee fraud in 2020 made the danger impossible to ignore. A company that fabricated $310M in revenue had been allowed to trade on Nasdaq, wiping out billions in value and devastating US investors. Congress and President Trump decided that enough was enough.
Under the HFCAA, companies whose auditors could not be inspected for multiple consecutive years would be delisted. The threat was real, and for the first time, Beijing faced the possibility of losing access to the deepest capital markets in the world. Then came 2021.
When the Biden administration took office, it moved quickly to reconstitute the PCAOB. The board was filled with highly paid Democratic appointees, led by Chair Erica Y. Williams, a longtime Democratic regulatory insider. Although no statute formally mandates partisan balance, tradition had long favored it. That tradition was abandoned. Christina Ho, the lone Republican, became a permanent dissenter in a board otherwise unified in outlook and priorities.
In August 2022, this board negotiated and signed a Statement of Protocol with Chinese authorities. The agreement was sold as a breakthrough. On paper, it promised inspection access. In reality, it functioned as a release valve. It allowed the PCAOB to vacate its prior finding that China was noncooperative, thereby halting the HFCAA delisting clock just as it was beginning to bite.
What followed should trouble anyone who cares about investor protection. Of the 47 PCAOB-registered audit firms based in China, only seven inspection reports have been published by the PCAOB in over three years. Seven. Those seven reports are devastating. Deficiency rates range from 67% to 100%. Four of the seven firms examined, including Chinese affiliates of KPMG and PwC, received a 100% deficiency rate. Every audit file reviewed failed to meet US standards.
This is not a technical quibble. A Part I deficiency means the auditor failed to obtain sufficient evidence to support its opinion. In plain English, it means the audit cannot be trusted. These are not marginal problems. They go to the core of financial truthfulness.
And yet, despite these findings, Chinese companies remain listed. New Chinese IPOs continue to appear. The deal did what it was designed to do. It avoided mass delistings. It did not solve the problem. It postponed it indefinitely.
Defenders of the protocol argue that sudden enforcement would harm US investors. There is some truth here. Fire sales destroy value. But this objection proves too much. It would justify allowing any fraud to continue so long as exposure is large enough. At some point, the question must be asked plainly. Is it moral to allow retired teachers to be invested in companies we know cannot pass an audit, simply because unwinding the position would be painful?
There is also a deeper cost that is rarely acknowledged. By allowing fraudulent or opaque Chinese companies to raise capital in U.S. markets, we are not merely risking investor losses. We are transferring U.S. currency to an adversarial regime. That capital helps finance military expansion, coal-fired power plants, industrial overcapacity, and soft-power campaigns across the developing world. Wall Street earns fees. China gains strategic leverage. American retirees carry the risk.
This is bad business and worse ethics. Markets depend on trust. When U.S. exchanges become platforms for known audit failures, the credibility of the entire system erodes. The PCAOB was created after Enron to prevent exactly this outcome. It is not supposed to be a diplomatic body. It is an audit watchdog.
Christina Ho warned about this path. She questioned the ballooning PCAOB budget, nearly $400M with roughly 900 staff. She dissented from rules that expanded bureaucracy without improving audit quality. She raised the alarm about the China deal. She was outvoted every time. Her term ends in two weeks. The board she leaves behind remains dominated by Democratic appointees, including Acting Chair George Botic, Kara Stein, and Anthony Thompson. All are well compensated each making more than than the President of the United States (almost as much as Dr. Fauci did). None have acted decisively to enforce the law Congress passed.
SEC Chair Paul Atkins has the authority to change this. He set an August 25 deadline for new PCAOB board applications. That signal matters, but signals are not enforcement. The board must be replaced, and quickly. The HFCAA must be enforced as written. Companies that fail inspections should be delisted. Not threatened. Delisted.
Kyle Bass is right. Delay only deepens the eventual damage. The longer this goes on, the more American capital is exposed and the more Beijing benefits. President Trump does not need to pick a fight with China to act here. He simply needs to enforce US law. Doing so would disappoint Wall Street. It would also restore moral clarity.
The choice is not between stability and chaos. It is between honesty and complicity. Strategic patience had its place. That time has passed. If America First means anything, it must mean that US markets exist to serve American investors, not to subsidize foreign deception and fraud.
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