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US-China relations

American companies in China try to avoid US-China ‘political crossfire'

Many businesses hope tensions will lessen after the presidential election on Nov. 3, but the results are not likely to radically change adversarial relations between Washington and Beijing.  

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A Xilinx sign is seen during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China, Nov. 6, 2018. 

Credit:

Aly Song/Reuters

When Angel Xu moved to Shanghai to run her company’s China office in 2016, business grew fast. She works for an American food supplier, and the demand for imported foods has been strong in China. 

But since the trade war with the United States hit in 2018, business dropped by more than half. One big reason is skyrocketing tariffs. Last year they jumped as high as 38%. 

Related: China's new Silk Road runs through cyberspace

US companies in China hope tensions will lessen after the presidential election on Nov. 3, but the results are not likely to radically change adversarial US-China relations.  

Xu, who asked The World not to use her real name, says Chinese clients have hinted they’re not keen to work with US suppliers any more. So her company is taking what might seem like a strange step to ensure their business grows in China — shifting from US- to European-based suppliers. 

“We do have two joint venture factories in Europe,” said Xu. 

Yes, that’s right. Xu’s American-led company is switching from "made in the USA" to "made in Europe." The costs for her Chinese clients will be higher, but more dependable. And that should be good for business.

Related: Amid increasing US-China tensions, humor is serious business

“If I can find other suppliers from Europe or other places that have, you know, 12% tariffs or zero tariffs, why should I go through the pain to get a US supplier? Other suppliers all have cheaper prices and lower tariffs and a good relationship with China.”

Angela Xu, businessperson, Shanghai, China

Xu summarizes the business logic for her clients: “If I can find other suppliers from Europe or other places that have, you know, 12% tariffs or zero tariffs, why should I go through the pain to get a US supplier? Other suppliers all have cheaper prices and lower tariffs and a good relationship with China.” 

This year, she was able to win a reduction in tariffs, but the damage had already been done, she said. 

Related: Schiff: US power to confront China 'has really atrophied'

Despite the volatile environment created by the trade war, US companies are eager to do business in China. A recent survey found that more than 80% of them are committed to keeping their operations in China and nearly 70% still feel optimistic about the market here. 

Matt Margulies works at the US-China Business Council that conducted the survey. He says China is just too big of a market to ignore. “You can't just pick that up overnight and move it to some other market. And where would you move it to? Which other market is going to be able to replace the growth or sales figures that are available here?” 

Margulies said US companies in China aren’t expecting election results to be a game-changer because both Trump and Biden take a tough stance on China. 

“If we were to look at President Trump or Vice President Biden, I think there's probably a lot of issues, domestic issues where they have a great disparity between them. But on China, my reading is that they have more overlap than many probably realize.”

Matt Margulies, US-China Business Council

“If we were to look at President Trump or Vice President Biden, I think there's probably a lot of issues, domestic issues where they have a great disparity between them. But on China, my reading is that they have more overlap than many probably realize.”

And it’s not just the presidential candidates, he says. 

“It's clear that this Congress has a very bipartisan focus on China. It's a view of China as an adversary.”

And China increasingly views the US in a similar way. Over the summer, Trump targeted TikTok and WeChat, two popular Chinese social media platforms. In response, last month, China’s Ministry of Commerce announced it is creating a system to determine “unreliable entities” — essentially a blacklist of foreign companies. No list has been released yet, but American companies don’t want to see their names on it.

“People are thinking, ‘What are we going to do?’ What is the best strategy for China?’ In short term and long term, this whole group of people — including me — has been scratching our heads.”

Angela Xu, businessperson, Shanghai, China

Related: Buying masks from China can get complicated. This businessman connects buyers and sellers. 

Angel Xu says US companies are trying to figure out the best way forward. “People are thinking, ‘What are we going to do?’ What is the best strategy for China?’ In short-term and long-term, this whole group of people — including me — has been scratching our heads.”

“I think most companies right now just want to stay out of the political crossfire. ... Many are keeping a low profile. They’re continuing to do business as they have for decades and are still quite successful.”

Matt Margulies, US-China Business Council

“I think most companies right now just want to stay out of the political crossfire,” says Margulies. “Many are keeping a low profile. They’re continuing to do business as they have for decades and are still quite successful.”

Margulies says they’ve come to expect volatility and advises them to avoid risks.  “Making sure that your supply chains are not touching any of the hot-button issues between the US and China right now.”

Xu says she takes comfort in knowing other US companies remain positive about the China market. “They see a bright future in China, which makes me feel better. I see people positive and they think positive in the future and that may lift my spirit.”

RelatedBoth candidates' platforms underline US struggle to confront China

But Margulies says things could get more complicated for US companies. 

“Increasingly, in order to comply with laws and regulations in the US, the Chinese government might start to see that they're not in compliance with the Chinese. They're going to be stuck between two systems where complying with one set of rules makes them non-compliant with the other set of rules.”

That’s one thing American companies in China really want to avoid.

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