Last week in China, I had the opportunity to share the Washington perspective on trade and tax policy with Chinese businesses through Lex Mundi and the CCCME. While I was there to brief them, I came away with a number of takeaways on their perspective on our present trade tensions and current events in China, as well as on the changes that have occurred since my last visit.
First, the latest on 301 tariffs: when the comment period ended on the $200 billion of proposed tariffs, common wisdom was that it was likely the President would immediately impose the tariffs. During my time in China, the Secretary of the Treasury invited Vice Premier Liu He to a new round of talks. As you may recall Liu was embarrassed when the deal that was cut in May was rejected by President Trump.
So, there isn’t much optimism in China that this is serious unless there have been assurances made by others close to the President that this is a real offer to negotiate. There is also a belief that the U.S. may be counting on deals with Japan, the European Union, Mexico, and Canada to provide more leverage on China. Relaxing trade tensions with Mexico and Canada, plus a preliminary trade agreement with the European Union, have made it easier to forge a multilateral front to oppose Chinese trade practices. The U.S., the European Union, and Japan have already held meetings on such a strategy.
In addition, Chinese industry leaders stated at our briefing that their belief was that the U.S., as the number one economy, is competing with China, the number two economy, by attempting through tariffs and other actions to keep China from surpassing the U.S.
This message comports with what I have read that the Chinese are sharing, mostly internally, not more publicly. Maybe the Chinese will eventually cave, but this internal messaging for staying the course and defending the agenda should inform the White House that they should be preparing for a much longer and more protracted trade war.
To underscore that China is not weakening, they have already responded by putting off accepting license applications from American companies in financial services and other industries until Washington makes progress toward a settlement. The disclosure is the first public confirmation of U.S. companies’ fears that their operations in China or access to its markets might be disrupted by the battle over Beijing’s technology policy.
China is running out of American imports for penalties in response to Tariffs. The license delay applies to industries Beijing has promised to open to foreign competitors. Chinese authorities had promised to increase foreign access to areas including banking, securities, insurance, and asset management.
Beijing has said it will use its heavily regulated economy to disrupt their operations by withholding licenses or launching tax, anti-monopoly or other investigations. Chinese leaders also continued to publicly reject US demands to roll back its “Made in China 2025,” which calls for state-led creation of global champions in robotics, artificial intelligence and other technologies.
Chinese regulators have also shown their willingness to go after foreign companies in disputes with other governments. Last year, Beijing destroyed South Korean retailer Lotte’s business in China because it sold property to the country’s government for construction of a missile defense system opposed by China. Beijing closed most of Lotte’s 99 supermarkets in China and even though they later resolved differences, they sold off their Chinese business.
Also being discussed in China is the new love fest with Russia. The local news in Shanghai highlights that China-Russia ties are set to expand. The Chinese ambassador was quoted as saying that China-Russia relations are at their best in history. Chinese President Xi Jinping attended the fourth Eastern Economic Forum held in the Russian city of Vladivostok last week at the invitation of President Vladimir Putin.
In addition, Russia and China held the biggest military exercises since the Cold War. In the recent past the opponent to these exercises was China, but these new major exercises planned together are designed to simulate responses to aggression from external enemies—perhaps targeting the U.S.
Another data point from the trip was that Jack Ma has announced he will step down as executive chairman of Alibaba.The discussion of this change with Chinese colleagues and other residents elicited descriptions of how he has transformed the Chinese economy. I shared how Amazon was transforming our life in the U.S. with “prime” delivery in one or two days.
They shared how they could get products ordered within hours to their location; i.e., wine, toothpaste. Additionally, they shared how they did not carry credit cards, nor really need a wallet, and paid with an app on their phone called “Alipay,” an online platform established by Alibaba. In China, neither Apple Pay nor traditional Visa or Amex works in many places. They also shared that if you needed a driver to take you home, you could also order an “Uber type” driver that could arrive via scooter (that could be folded up to fit in the trunk of your car) and drive you home. Just the Jeff Bezos’ of the U.S. have transformed America’s economy, Jack Ma has transformed China.
And finally on a more humorous note (if you are a trade nerd like me), there was a new song devised by the CCP, called I’d Like to Build the World a Road. It was set to commemorate the 5th anniversary of Xi’s vision for the Belt & Road Initiative. The song is set to the old Coca Cola advertisement jingle “I’d Like to Buy the World a Coke.”
Some of the lyrics are:
I’d like to teach the world to sing, in perfect harmony. I’d like to hold it in my arms, and with my family.
I’d like to tell the world a truth, and keep it in my heart. Community of shared future for mankind’s coming true.
It’s the Belt and Road, what the world wants today. That’s the hope we will say, with the belt and road.
It’s the Belt and Road, won’t you hear what we say. What the world needs today, it’s the real thing.
The Coke theme, really??