US-China volatility keeping private sector on its toes

US-China volatility keeping private sector on its toes
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In April, three massive ships named Eden, Bonanza and Eagle took off from Corpus Christi, Texas, packed with a cargo of sorghum, a grain that the ships’ Chinese clients would use for animal feed, or distill into a potent-but-popular production run of baijiu liquor.

When China’s government announced a 179-percent increase in tariffs in mid-April, the ships made an abrupt turn in the middle of the Indian Ocean. Then, on May 18, when China subsequently scrapped a probe into sorghum, the ships puttered back on track.

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Trade blows re-charted the ships of sorghum into a highly unorthodox path. While private-sector adjustments after a slate of $50 billion tariffs on technology goods will likely not show up on geospatial tracking, similarly abrupt reversals of course on trade policy are a strong signal for rank-and-file players of U.S.-China trade to consider government officials’ changing trade preferences.

 

Private-sector firms in China and the United States are adjusting expectations — sometimes in real time — after witnessing new developments within this volatile policy environment. American trade groups such as the U.S.-China Business Council (USCBC) reacted with caution to the developments on tariffs released May 29.

“We would like to see both sides put the threat of sanctions on hold and quickly get into negotiations to resolve these important issues,” wrote USCBC President John Frisbee in a press release.

American high-tech industries that have been put in the hot seat by past slates of tariffs have included plastics, aircraft manufacturing and pharmaceuticals, according to an early April Brookings Institution analysis.

In addition to finished technological goods, China has also placed past bans on "foreign waste," which impacts both recycling and manufacturing sectors.

Wenhong Chen, associate professor of radio-TV-film at the University of Texas at Austin, says that currently proposed tariffs are unlikely to bite into China's most strategically important tech firms:

“If we take one step back and look at China’s overall [technology] strategies, we’re mostly talking about tech giants in China like Alibaba and Tencent and emerging unicorns in the digital economy. China has a huge domestic market, and they are doing extremely well there because Google, Facebook and Amazon have issues preventing them from fully operating there.” 

China’s own protectionist limitations, including content censorship and policy support for Amazon’s in-market rivals, such as Alibaba’s Taobao, have drawn longstanding criticism by foreign firms. 

However, smartphone and internet-of-things gadget-maker Xiaomi may feel dissuaded by the new American deicisions:

“In early 2018, Huawei suffered some big setbacks entering the smartphone market in the U.S., ” Chen said. “At this point, [tariffs] make other hardware manufacturers, particularly Xiaomi, which is active in India and other international markets, more cautious of entering the smartphone market in the U.S."

In addition to Huawei, fellow telecoms manufacturer ZTE was hit with broad restrictions for skirting U.S. sanctions on Iran. Though President TrumpDonald John TrumpBrennan fires new shot at Trump: ‘He’s drunk on power’ Trump aides discussed using security clearance revocations to distract from negative stories: report Trump tried to dissuade Melania from 'Be Best' anti-bullying campaign: report MORE has signaled interest to lighten restrictions, disagreements between the legislative and executive branch have yet to be ironed out. ZTE’s American operations remain an unresolved question. 

The interlaced nature of China and the United States’ supply chains is a complicating factor in the construction of effective trade policy.

One study published by the Peterson Institute of International Economics argues that, of the firms of Chinese origin exporting to the United States in 2014, 60 percent are foreign invested enterprises.

These findings suggest that American manufacturing and production comprise a significant component of Chinese exports, and that blowback may hurt hardware supply chains of American corporations.

“Negotiations aren’t guaranteed smooth sailing, but the same process can’t repeat forever,” argued an op-ed from state-run Xinhua News Agency’s Yu Jiaxin.

While Washington’s substantial responsibilities will be to get their Chinese interlocutors to yield on nationalistic technology transfer rules that foreign firms are subjected to, Chinese negotiators must first be convinced that the talks will lead to productive outcomes for them before they may acquiesce anything meaningful to Americans.

Balancing security risks and competitive risks will not be an easy task for American officials, but pitfalls for haphazard trade policy are high for private-sector actors. In an era when America seeks to assert profitable and cutting-edge technology dominance, firms may be getting eager for answers sooner rather than later.

Rui Zhong is the program assistant for the Kissinger Institute on China and the United States at the Wilson Center. She manages "Mapping China’s Cultural Genome," a project that collects top-level speeches and commentary on China’s global cultural ambitions.