Wall Street dodged the financial carnage of the US-China trade war, but it could be among the biggest losers from the latest flashpoint between the two nations – and it is struggling to mount a defence. Financial companies’ angst is focused on legislation pending in Washington that threatens to kick Chinese companies, including Alibaba and Baidu, out of American stock markets. The crackdown, which US politicians say will protect investors from fraud and fortify national security, would affect much of the financial industry. The New York Stock Exchange and Nasdaq are worried about losing listing fees. Big 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 mobilise against the bill, which gained significant headway last month when the US Senate approved it unanimously. With perhaps billions of dollars in revenue at stake, it is 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 towards 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 US investors, a position that would anger Republicans and Democrats. But if the legislation clears the House and is signed by President Donald Trump, US financial companies might be among the businesses that bear the brunt of any reprisals from Beijing. Companies also fear an escalating tit for tat between the countries that could bring even costlier policy changes. “Tensions are very high,” says Shaswat Das, a lawyer 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 companies such as Goldman Sachs, JP Morgan Chase and BlackRock that have charged ahead with plans to expand their businesses in China. They have been lured by the chance to make inroads into the nation’s $47 trillion (Dh172.63tn) 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 companies. 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. The Senate bill, which took the Securities and Exchange Commission and even some members of Congress by surprise when it passed without debate on May 20, would prohibit Chinese companies from trading in the US if PCAOB inspectors aren’t allowed to review their auditors’ work for three consecutive years. The businesses would also have to certify that they are not controlled by China’s Communist Party. China has long refused to let the audit regulator scrutinise its accounting companies. Despite not adhering to that regulation, there are more than 200 Chinese corporations that have been allowed to trade on US exchanges, according to the PCAOB. Their market capitalisation is roughly $1.8tn, with Alibaba making up about one third of the total. Luckin Coffee’s recent disclosure that it is being investigated for accounting irregularities in the US and China has exacerbated concerns about potential misconduct. Since reaching a high of $50 a share in January, the fast-growing Chinese chain has fallen more than 90 per cent in Nasdaq trading, a plunge that has erased about $11.5 billion in market value. “It’s asinine that we’re giving Chinese companies the opportunity to exploit hard-working Americans,” says Senator John Kennedy, a Louisiana Republican who is sponsoring the bill with Maryland Democrat Chris Van Hollen. Mr Kennedy, known for being outspoken, has been quick to attack those he thinks are undermining his effort. After learning that SEC officials had discussed revisions to his legislation with House politicians, Mr Kennedy accused the agency of lobbying against it in a Fox News interview. While the agency denied the charge, it had given House staff members a long list of suggested changes to the Senate bill. The SEC ultimately offered a much narrower set of recommendations that are mainly intended to limit the legislation’s effect on US corporate subsidiaries operating in China. Still, the episode served as a warning to Wall Street about the backlash it would probably face for aggressively opposing the legislation. SEC chairman Jay Clayton supports the Senate bill and believes the status quo of Chinese companies listing on American exchanges without adhering to US regulations is unacceptable, Chandler Costello, an agency spokeswoman, said. Before joining the SEC, Mr Clayton was a partner at law firm Sullivan & Cromwell, where he worked on Alibaba’s 2014 US IPO. The delisting measure appears to have momentum, and is expected to pass the House, lobbyists said. Financial Services Committee chairwoman Maxine Waters has told people that she will not impede its progress as long as the Senate agrees to pass a separate bill that requires public companies to report annually on the ethnic, racial and gender diversity of top executives and board members. In a Fox Business interview last month, Mr Trump indicated that he is frustrated that Chinese businesses are not following US accounting rules. He, however, said the companies might just move their stock listings to London or Hong Kong if the US took a tougher stance on compliance. Mr Trump subsequently ordered the Treasury Department, SEC and other agencies to study the issue, and submit recommendations to him by early August. NYSE and Nasdaq would be among the hardest hit if the US kicks out Chinese businesses because they would lose millions of dollars in fees the companies pay to be listed on their exchanges. Their lobbyists have succeeded in killing similar legislative efforts in the past. This time, however, it is clear the ground has shifted. Lawmakers have not been receptive to suggestions that the legislation should only affect companies seeking new stock listings, which would insulate businesses already trading in the US. And the exchanges, according to sources, have not been able to persuade the US Chamber of Commerce to weigh in against the bill. The nation’s biggest business lobby believes there is little upside to opposing it. The NYSE said that if the bill passes, the exchange hopes regulators enforce the legislation in a way that “delivers investor protection based on transparency” and ensures it’s not just “a privileged few” who can buy shares of Chinese companies. Nasdaq declined to comment. Tom Quaadman, executive vice president of the chamber’s Centre for Capital Markets Competitiveness, said “it is important for the US and China to come to agreement on these issues”. For Wall Street, there is also a view that they should save their ammunition for more important fights – and there are many more probably coming. One piece of legislation that is especially troubling would punish financial companies for doing business with Chinese officials who are seeking to impose a sweeping security law on Hong Kong. The bill, introduced last month by Mr Van Hollen and Republican Pennsylvania senator Pat Toomey, responds to criticism that China’s proposed law would curb freedoms in Asia’s financial hub. Bank lobbyists privately say that they fear the legislation will pass easily if it ever reaches the Senate floor.