Trade War

The United States’ tariffs on China and China’s retaliatory tariffs in response may be the biggest news for businesses with global supply chains that include China, but the Chinese have other weapons that American companies are beginning to feel the pain from as the trade wars escalate.

As every American business has experienced in this country, regulatory burdens and delays can have a dramatic impact on their bottom line. With the depth and breadth of the Chinese government’s involvement in the Chinese marketplace, they can strangle American companies doing business there right out of their markets.

They can slow down approvals processes, canceling orders for U.S. goods or encouraging consumer boycotts. American companies including Walmart Inc. and General Motors Co. host large operations in China and have plans for expansion that could be hindered. China has used these tactics before, notably against South Korea and Japan during previous political conflicts, including carmakers from the two countries among the victims. For examples, Japanese automakers took a major hit in their China sales in 2012 after the fight over disputed islands in the East China Sea escalated. China also put a huge dent in tourism in South Korea by banning package tours in 2017 amid a dispute over a missile shield.

The Chinese government could hurt the U.S. in the same manner by appealing to Chinese patriotism and pushing its population to boycott U.S. products and prominent brands like Apple. Both the Chinese state media and social media outlets show that the Chinese leadership has riled up a population ready to fight alongside its leaders in the economic war against President Donald Trump and the United States.

Other actions include tighter customs procedures, new paperwork requirements, invalidating patents, extra scrutiny on business licenses, delaying all regulatory approvals, and other actions that disrupt American companies supply chain which are all drawn from a playbook that Beijing has consistently relied upon in years past. The government could also scrutinize visas, making it harder for U.S. business travelers to enter the country. These are all considered “qualitative” actions that can remain firmly under the government’s control.

Then there’s currency manipulation. China has pleased trading partners in recent times by allowing greater appreciation of the yuan, but there is no guarantee it will stick to this. The yuan is the worst-performing currency in Asia since mid-June, sliding more than 3 percent.

And, of course, there’s also the “nuclear option.” While it seems unlikely as China would also suffer greatly, it could offload some of a huge hoard of U.S. Treasuries. Unless the U.S. and China reach a compromise, the trade war between the world’s two biggest economies looks to be headed for a new level.

Harsher rhetoric from Chinese officials in recent days has hinted that Beijing could be weighing its options for how to hit back against a decision by the U.S. to increase existing tariffs and impose new penalties on all remaining Chinese imports. Chinese President Xi Jinping warned in a speech recently that one civilization forcing itself on another would be “stupid” and “disastrous.”

Data on such disruptions is hard to come by. But more than one in four businesses that responded to a U.S.-China Business Council survey said they have been subject to increased scrutiny from Chinese regulators as a result of the increasing trade tensions.

Those companies also ranked political risk associated with the U.S.-China relationship as their top challenge for the first time since the survey began 10 years ago.

Disparate American goods such as oranges, logs, calf skins and even Lincoln vehicles have encountered heightened customs reviews at Chinese ports this year. Multinational companies already accustomed to the sometimes difficult environment have reported an uptick in the number of hurdles they must jump through in order to do business in the increasingly lucrative market.

The MBS Trade staff has heard from American companies doing business in China that they are receiving increased scrutiny in a number of areas. Please let us know if your company or your client’s company is having such troubles as we may be able to assist.

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