For Wall Street banks hoping to play a role in one of Hong Kong’s biggest IPOs in years, the U.S. Department of Defense’s decision this week to add CATL to a list of companies thought to have links to the Chinese military could not have come at a worse time.

The company, the world’s largest maker of electric vehicle batteries and a supplier to Tesla, has been in talks with banks in recent weeks as it prepares plans for a secondary public offering in Hong Kong. The initial public offering will give the company, which aims to expand overseas, access to offshore funds, and Morgan Stanley estimates it could raise up to $7.7 billion.

Goldman Sachs, Bank of America, JPMorgan, and Morgan Stanley have expressed interest in working on the listing, two people familiar with the process told the Financial Times. The Shenzhen-listed company is expected to select underwriters ahead of a shareholder meeting on January 17, when the date and size of the offering will be discussed, one of the people said.

But the Pentagon’s move, which also added tech giant Tencent and Cosco, one of China’s largest shipping companies, to the list, threatens to change banks’ risk-reward calculations.

Although it does not directly impose legal restrictions on banks working with companies on the list, it will force banks to face a difficult reputational question: Can a bank finance shares in a company that the U.S. says has links to the Chinese military?

“Unfortunately, random blacklisting of customer names is becoming a more common feature of banking these days, which creates risk,” said Han Shen Lin, China country director at U.S. consultancy The Asia Group. “The most banks can do is to reposition their business and customer mix accordingly,” he added.

Speaking to the Financial Times, Lin said inclusion on the list “doesn’t carry the same weight as a sanction, but it’s close enough that banks can preemptively reduce exposure to these names just to avoid negative headlines.”

It is unclear whether U.S. banks will continue their participation following the Pentagon’s move. Goldman Sachs, Bank of America, and JPMorgan declined to comment, and Morgan Stanley did not respond to a request for comment.

Tensions lead to uncertainty in trade agreements

This action is the latest sign that U.S.-China tensions are dragging deals into more and more uncertainty. Any move to sever ties with companies on the list could be costly for banks. Tencent, in particular, is among the most important Chinese customers of U.S. institutions.

The tech giant’s parent company paid $524 million in investment banking fees between 2004, the year of its initial public offering, and 2023, according to figures from the London Stock Exchange Group. Morgan Stanley, Bank of America, Goldman Sachs, and Citigroup were the biggest beneficiaries of these payments.

Although Goldman Sachs was the third-largest recipient of fees from investment banking activities, CATL benefited less from foreign banks, with the lion’s share of its fees going to China Securities and CICC, according to LSEG data.

CATL and Tencent said they are planning legal action to challenge the Pentagon listing if talks with the U.S. Department of Defense fail.

Pony Ma, founder and chairman of Tencent, said the company was “neither a Chinese military company nor a military-civilian fusion company contributing to the Chinese defense industrial base.”

CATL said it had “never engaged in any military-related business or activity,” while Cosco said none of the companies on the list were “Chinese military companies” and that it would contact U.S. authorities “to clarify this matter.”

The move echoes the dilemma faced by banks in 2023 when Swiss agrochemical company Syngenta wanted to hire banks for its $9 billion initial public offering on the Shanghai Stock Exchange.

Banks were hesitant about whether they could work on the deal because the U.S. Department of Defense had placed Syngenta’s owner, state-owned ChemChina, on its list of “Chinese military companies.”

Bankers at Goldman Sachs, JPMorgan, Morgan Stanley, UBS, and HSBC lobbied for a role on the list, although Syngenta eventually canceled the plan.

CATL told investors that access to dollars was a key part of the rationale for the listing. The company had RMB 289 billion ($40 billion) in cash as of March 31, but China’s strict capital controls system means government approval is required for overseas direct investments above a certain threshold.

Canadian Prime Minister Justin Trudeau resigned after the majority of his own party stepped down.

“Canadians deserve a real choice in the next election, and with internal struggles, it has become clear to me that I cannot be the person to carry the Liberal standard into the next election,” Trudeau said on Monday.

During his nine years in power, Trudeau represented the Liberals globally in the “culture wars” but failed to find solutions to the cost-of-living crisis and economic stagnation at home.

Canadians have grown increasingly dissatisfied with Trudeau’s economic policies. Canada’s gross domestic product (GDP) per capita has contracted for six consecutive quarters and has fallen by 3.5% since its peak in 2022—a decline never before seen outside of a recession.

Unemployment continues to rise, while wages are not keeping pace with market price increases. The dream of homeownership seems even more unattainable for many young Canadians, an important voting bloc that helped elect Trudeau.

The Liberal Party will move away from ‘Trudeau-style progressivism’

The economy, which under Trudeau focused on record immigration, expanded government spending, and “green” goals, is expected to enter a period of “restructuring” in the face of Donald Trump’s administration and the threat of potential tariffs from the United States.

As Canada prepares for the Trump era, the Conservative Party is gearing up to take power and steer the country away from Trudeau’s “progressive-liberal” policies.

Although the Liberal Party will now choose Canada’s next leader, the country will likely face a national election soon after. Some polls show the Liberals trailing the Conservatives by 20 points, and the world’s fourth-largest oil-producing nation is likely to debate taxes, spending, and environmental regulations.

Anthony Housefather, a Liberal Party MP from the Montreal region, said earlier that a new leader could help the Liberals abandon the “progressive” agenda led by Trudeau and present a “more centrist vision.”

Conservatives poised to win elections with ‘Trumpist’ policies

Pierre Poilievre, leader of the Conservatives and expected to become prime minister after the next election, promises to reduce Trudeau’s carbon tax while increasing raw material production.

If the Conservatives win, they are expected to favor a government that is “more pro-business and pro-extraction, smaller government, and less spending.”

“Canadians can take back control of their lives and their country, take back control of our border, take back control of immigration, take back control of spending, deficits, and inflation, take back control of our streets,” Poilievre said in a video posted after Trudeau’s resignation, adding, “and put Canada first.”

In an interview with Canadian right-wing influencer Jordan Peterson last week, Poilievre said he admired the economic models of Ireland, Singapore, Switzerland, and Israel, stating he would cut federal aid such as foreign aid, outsourcing, and grants or loans to businesses in favor of lower taxes overall.

Trump continues to mock Trudeau

Such policies align more closely with Trump’s. Trump has threatened a 25% tariff on his northern neighbor and mocked Canada as the “51st state” of the United States.

Indeed, in a Truth Social post following the Canadian politician’s resignation, Trump wrote: “The United States can no longer tolerate the massive trade deficits and subsidies Canada needs to survive. Justin Trudeau knew this and resigned.”

Trudeau, 53, will remain prime minister until a new leader is elected, likely in March.

Potential candidates include Chrystia Freeland, whose resignation as finance minister last month signaled the end for Trudeau; Dominic LeBlanc, a Trudeau ally who replaced her; and Mark Carney, former governor of the Bank of Canada, who is also chairman of Brookfield Asset Management and Bloomberg.

Budget and fiscal issues stand out

Fiscal spending has emerged as a key issue for Trudeau, with Freeland emphasizing her disagreement with the prime minister as she resigned, suggesting that proposed tax rebates were “irresponsible political gimmicks.”

The country’s federal debt has almost doubled since 2015, rising to 1.24 trillion Canadian dollars (US$870 billion) in the 2023–24 fiscal year.

However, the federal government has added billions of dollars in permanent new spending measures, including child benefit vouchers, subsidized daycare, and a national dental plan.

Total program spending accounted for 16.2% of the economy last fiscal year—the highest rate since the early 1990s, excluding the COVID-19 pandemic.

President-elect Donald Trump on Sunday threw his support behind a comprehensive bill covering border, energy, and tax issues.

In a post on Truth Social, Trump said, “Members of Congress have begun work on a strong bill that will bring our country back and make it bigger than ever. We must secure our border, free American energy, and renew the Trump tax cuts,” Trump wrote.

“Be smart, be tough, and send the bill to my desk for me to sign as soon as possible,” he added, arguing that Republicans must unite and quickly realize “these historic victories for the American people.”

Trump’s direct endorsement of a single major legislation strategy came a day after House Speaker Mike Johnson told members in a closed-door meeting that the president-elect favors a single-bill approach using compromise rather than two bills.

Republicans divided on single legislation

Republican Jason Smith, chairman of the Ways and Means Committee, was among those pushing for a single package, while the two-bill strategy was supported by Senate Majority Leader John Thune, some of Trump’s allies on Capitol Hill, and the new White House Deputy Chief of Staff Stephen Miller.

In an interview on the Sunday Morning Futures With Maria Bartiromo program, Johnson said he wants to adopt a budget resolution in February with instructions for a comprehensive energy, border, and tax package.

Johnson then aims to pass the bill through Congress in early April and put it on Trump’s desk by the end of the month.

The one-bill strategy still raises some skepticism among Republicans. Johnson admitted on Sunday that the bill could therefore be delayed until May.

Republicans from ‘farm states’ fear tariffs

On Truth Social, Trump also revisited another issue that has drawn the ire of some Republicans in Congress: the use of tariffs to help defray the costs of the tax package.

Trump’s mention of tariffs has raised concerns, particularly in the Senate, where Republicans elected in so-called “farm states” worry that the agricultural sector will be the target of foreign retaliation.

Key Senate Republicans have also said they do not believe tariffs are a spending-stabilizing option.