US companies in China do not support trade war

As the US-China trade war escalates, US companies located in China feel caught in the middle. On 18 September, China announced tariffs on an additional $60bn in US goods in response to president Donald Trump’s decision to implement tariffs on $200bn of Chinese goods.

If implemented on both sides, more than half of all US-bound Chinese imports and 85% of Chinese imports destined for the US will be subject to tariffs.

But while US business is supposed to be the beneficiaries of Mr Trump’s policies, few appear to believe the trade war escalation is productive. “I have not heard a single business person say they are benefiting from the trade war, or trade friction. They hope that it can end,” says Harley Seyedin, president of the American Chamber of Commerce in South China.

The American tariffs, which will go into effect as of next week, will start by imposing a 10% levy that will rise to 25% if a deal is not reached by 2019. An earlier tariff round already imposed additional duties on $50bn in Chinese goods, targeting the steel and aluminium industries.

Issues remain for US companies operating in China, including a history of policies that discriminate against foreign investors and concerns over the security of intellectual property. However, Mr Seyedin believes the Trump administration’s solution is disproportionate. “The rational thinking is that these numbers are not big enough to deserve a trade war for us all. These are issues that can be resolved through discussion.”

The chamber says its 2300 members have closed an average of $2bn in deals every year for the past 15 years. While US greenfield FDI into China has gently declined since the 2009 financial crisis, it still amounted to $9.78bn in 2017, according to data service fDi Markets.

The Trump administration believes the trade war will eventually force China to rectify its trade surplus with the US while also ending policies such as forced technology transfers, which have long irked US companies. So far, neither side looks likely to back down.

While the first round of US tariffs mostly targeted heavy industry, subsequent measures have widened their scope. Chinese retaliatory tariffs target goods ranging from symbolic American products such as cars, motorcycles and whiskey, to natural gas and shellfish.

Companies in both countries say the tariffs have disrupted their supply chains, forcing them to turn to alternative sources. “The result of this process is that everyone is losing, there is no doubt about that. My company, for the first round of tariffs, we had to stop importing seafood products from the US. Instead we have to buy from Canada and other places,” says Tony Tang, president of import-export platform BaseMall based in Xiamen, southern China.

In the US, experts and business people argue that additional costs for more expensive goods from China will ultimately be passed on to US consumers in the form of higher prices, while US companies operating overseas also stand to lose out in their home market.

“There are American companies who produce high tech components [in China] that are shipped to the US. They tell me that the fact there is now 25% tariff on their products going to the US [means] companies from Germany are now more competitive,” Mr Seyedin says. “So actually this is resulting in a shift of orders from American companies – which creates American jobs – to German companies – which is boosting the German economy.”

As the US-China trade war escalates, US companies located in China feel caught in the middle. On 18 September, China announced tariffs on an additional $60bn in US goods in response to president Donald Trump’s decision to implement tariffs on $200bn of Chinese goods.

If implemented on both sides, more than half of all US-bound Chinese imports and 85% of Chinese imports destined for the US will be subject to tariffs.

But while US business is intended to be the beneficiary of Mr Trump’s policies, few appear to believe the trade war escalation is productive. “I have not heard a single business person say they are benefiting from the trade war, or trade friction. They hope that it can end,” says Harley Seyedin, president of the American Chamber of Commerce in South China.

The US tariffs, which will go into effect as of next week, will start by imposing a 10% levy that will rise to 25% if a deal is not reached by 2019. An earlier tariff round already imposed additional duties on $50bn in Chinese goods, targeting the steel and aluminium industries.

Issues remain for US companies operating in China, including a history of policies that discriminate against foreign investors and concerns over the security of intellectual property. However, Mr Seyedin believes the Trump administration’s solution is disproportionate. “The rational thinking is that these numbers are not big enough to deserve a trade war for us all. These are issues that can be resolved through discussion,” he says.

The chamber says its 2300 members have closed an average of $2bn in deals every year for the past 15 years. While US greenfield FDI into China has gently declined since the 2009 financial crisis, it still amounted to $9.78bn in 2017, according to data service fDi Markets.

The Trump administration believes the trade war will eventually force China to rectify its trade surplus with the US while also ending policies such as forced technology transfers, which have long irked US companies. So far, neither side looks likely to back down.

While the first round of US tariffs mostly targeted heavy industry, subsequent measures have widened their scope. Chinese retaliatory tariffs target goods ranging from symbolic US products such as cars, motorcycles and whiskey, to natural gas and shellfish.

Companies in both countries say the tariffs have disrupted their supply chains, forcing them to turn to alternative sources. “The result of this process is that everyone is losing, there is no doubt about that. My company, for the first round of tariffs, we had to stop importing seafood products from the US. Instead we have to buy from Canada and other places,” says Tony Tang, president of import-export platform BaseMall based in Xiamen, southern China.

In the US, experts and business people argue that additional costs for more expensive goods from China will ultimately be passed on to US consumers in the form of higher prices, while US companies operating overseas also stand to lose out in their home market.

“There are US companies who produce hi-tech components [in China] that are shipped to the US. They tell me that the fact there is now 25% tariff on their products going to the US [means] companies from Germany are now more competitive,” Mr Seyedin says. “So actually this is resulting in a shift of orders from US companies – which creates US jobs – to German companies – which is boosting the German economy.”