COVID Lockdowns, Not Tariffs, Souring Business on China
Large U.S. multinationals are more pessimistic about doing business in China than they have ever been, but it's not because they have come to expect the Section 301 tariffs will never go away. Rather, the annual U.S.-China Business Council membership survey found that lockdowns to control COVID-19 are the top problem for companies doing business in China, with 96% of respondents saying the lockdowns hurt their firms, and 48% saying that there was a severe negative impact.
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The survey respondents were about half manufacturers, half service providers, so tariffs haven't been as salient for the membership as for an association that only deals with importing goods.
Craig Allen, president of the USCBC, said at a press conference Aug. 29 that U.S.-China tensions are still seen as a major risk factor for firms doing business in China. Of the top 10 problems mentioned by those in the survey, No. 1 and No. 3 were COVID-19 related -- No. 3 is being unable to visit operations in China -- but No. 2 is the tension between the two governments. Allen said geopolitical pressures are bleeding into the commercial realm.
While about three-quarters of the firms said they did not move any of their supply chain out of China in the last year, among those who did, the survey allowed them to answer with all reasons that applied.
U.S.-China tension was a reason for 75% of them. Supply chain resilience was a reason for 75%. COVID shutdowns were a reason for 58% of firms; rising costs, for 25%; and 17% said either U.S. regulations or U.S. political pressure or market access problems in China or regulatory problems in China.
The Section 301 tariffs came about as a policy response to what the U.S. government sees as distortive industrial policy, intellectual property theft, and discriminatory practices in the Chinese market that give a leg up to domestic champions. All those issues also made the top 10, despite the tariffs being in place for years.
Allen said there has been little progress on longstanding issues, and said for IP in particular, there has been only "limited improvement."
Of the 17% of firms that said that China's industrial policies hurt their ability to make money, 77% said that's because there are Chinese firms that were not competitive before the government put its thumb on the scale, but now they are competitive.
While only 17% say it's an issue now, 37% say they're worried it will be harder to maintain global market share sometime in the next five years because of Chinese industrial policies, and 53% say they're worried they could lose market share more than five years from now.
While the survey did talk about U.S. regulatory stances and political pressure as a reason to move segments of the supply chain out of China, the Uyghur Forced Labor Prevention Act was not explicitly mentioned. Allen, in response to a question from International Trade Today, said there's no evidence yet that more goods, or goods from a wider spread of sectors, are being seized since the law took effect, compared with the previous withhold release order approach. But, he said, "A big build-up is underway with regulatory ability -- a lot of people are being hired." He said the government also is dedicating resources to better commercial intelligence and information gathering.