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April, 2018

US businesses warily eye escalating trade tensions with China

Original article: The Washington Post

American companies with heavy China exposure are warily eyeing the escalating trade spat with Beijing. Soybean producers, aerospace manufacturer Boeing and several automakers are among the U.S. firms who could suffer from a trade conflict. Beijing has threatened retaliatory tariffs should Washington follow through on implementing a 25% levy on $50 billion in Chinese imports. 

Analysis:

China is a key market for some U.S. firms and industries. It is the top retail market for General Motors, which sold 4 million vehicles to China last year. Boeing earned $11.9 billion in revenue from China during its 2017 fiscal year, about 12.75% of annual revenue. The Department of Agriculture reckons China was the top market for American of soybeans last year - Beijing bought $12.3 billion worth, about 61% of total U.S. soybean exports. 


It thus comes as no surprise that soybean farmers worry a Sino-U.S. trade conflict could rattle their bottom lines. In a statement, American Soybean Association President and Iowa farmer John Heisdorffer said that "a 25 percent tariff on U.S. soybeans into China will have a devastating effect on every soybean farmer in America." Heisdorffer called on the Trump administration to withdraw the tariffs that caused China to retaliate. 


In an April 4 commentary, Xinhua attacked the Trump administration's latest round of tariffs. "In an essentially political move, US President Donald Trump is knowingly shooting the wrong target by imposing steep tariffs on 50 billion US dollars worth of Chinese imports," the commentary said. "The protectionist policies will hurt most those Trump has claimed they will help." 


Some analysts have pointed out Beijing targeted soybeans in retaliation because those farmers reside in midwestern states that helped Trump win the 2016 presidential election. By that logic, Trump will jeopardize his 2020 re-election chances if he doesn't withdraw the tariffs on Chinese goods. We don't think so. Among the U.S.'s top ten soybean-producing states, six of ten are solidly Republican: Nebraska, Indiana, Missouri, North Dakota, South Dakota and Arkansas. Illinois is solidly Democratic. Minnesota leans Democratic. Only Iowa and Ohio are true "swing states," which are closely contested during every presidential election. 


Further, "while some individuals might lose their jobs if [soybean] sales to China fall, it’s unlikely as of today that it is a sufficient number of voters to change a state’s popular vote and hence its electoral college vote," says Ross Feingold, a Taipei-based political risk consultant and close watcher of American politics. 


At the same time, Trump has promised to protect farmers from any fallout over Chinese tariffs. He hasn't specified how he would do that. If he were to give them subsidies, he would risk upsetting other American trade partners.  


Feingold points out earlier predictions that President Trump’s immigration policies would backfire with farm owners who employ migrant labor did not come to pass. Also, Trump's core constituencies in the swing states vote on issues besides their personal finances, he says, such as a rollback of regulations that impacted the-natural resources sector, abortion, gun rights, and the nomination of conservative federal judges, "all of which the Trump administration continues to deliver on." 


As for the upcoming U.S. midterm elections, the ruling party usually loses a number of congressional seats. It's quite possible that the Democrats will recapture the House of Representatives irrespective of the trade dispute with China. But in the Senate, the Democrats would need to retain all 26 of their seats in play (24 belonging to Democratic senators and two held by independents who caucus with the party) and win two Republican seats to take control of the chamber. That's a daunting task. 


Of course, Chinese President Xi Jinping also faces a potential trade war from a position of strength. He has emerged as China's most powerful leader since Mao Zedong. The Financial Times quoted a Ministry of Commerce spokesperson as saying that “China doesn’t want a trade war, but we’re not afraid to fight a trade war.” Lu Kang, the spokesperson for China's Foreign Ministry added: “We will accompany [the US] until the end, we will not hesitate in paying any price."


Still, China has signaled a willingness to address some of Washington's concerns about intellectual property. The alleged theft of U.S. intellectual property by Chinese firms is one of the main reasons the U.S. has targeted China with tariffs. Speaking at the end of the National People's Congress in March, Premier Le Keqiang said: “We will fully open up the manufacturing sector, with no mandatory technology transfers allowed, and we will protect intellectual property." 


Fulfillment of no forced technology transfers and other pledges made by China's leaders over the past year could help reduce the rising risk of trade conflicts, Mats Harborn, president of the European Union Chamber of Commerce in China, told The South China Morning Post in March. “It is now crucial that we see a concrete timeline for this opening to take place," he added. 


Holman W. Jenkins Jr., a columnist for The Wall Street Journal, is sanguine that Washington and Beijing will amicably work out their differences. In an April 6 commentary, he wrote: "The omens are propitious for a major advance in trade relations. But the Chinese should remember one thing: Mr. Trump is a teetotaler, so the eventual congratulatory toasts should be nonalcoholic."

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