The US Securities and Exchange Commission recently moved to sue the Chinese affiliates of the big four accounting firms for not sharing details of their audits of Chinese companies. From the US perspective this was a reasonable response to the perceived opacity of Chinese companies listed on US exchanges. Allegations of fraud at companies such as Sino-Forest have led to a wave of auditor resignations this year.

But the SEC move will strain a bilateral relationship with China that is already on the rocks. The issue is not only one of law or accounting but a wider one of sovereignty. US rules, which require accountants to share audit documents from foreign countries, conflict directly with China’s, which bar the practice. If the regulators of both countries continue to assert their own rules, companies and investors caught in between will be hurt in the process.

By creating a situation where Chinese companies will be forced to delist, the SEC risks depriving US citizens of lucrative opportunities to invest in fast-growing companies. The US economy may also suffer in the long term if it earns a reputation for legal hostility to Chinese companies.