Beyond tariffs: China’s ‘precision strikes’ on US businesses
US companies in China are bracing for more retaliatory pain from Beijing as the trade row between the two countries shows no sign of abating.
Observers said some American firms had reported higher costs and much greater regulatory scrutiny, and feared a major drop-off in business from rising nationalism.
The fallout follows a decision by Washington and then Beijing to impose 25 per cent tariffs on US$34 billion worth of imports from the other country. More duties are in the pipeline and the White House is weighing up whether to more than double tariffs on another US$200 billion worth of products from China.
There are indications that the tariffs are starting to bite. One US maker of mechanical equipment spare parts said the duties were expected to add US$6 million to the cost to its headquarters of buying products from its China operations.
“We are one of those who have been hit by a ‘precision strike’,” a Chinese executive in the company’s China office said.
In absolute terms, the tariff game is not one China can win, given it buys much less from the United States than the US imports from China. So Beijing has vowed to impose “qualitative” measures.
“The retaliation has been subtle and mostly involving hold-ups of incoming goods by China Customs and unnecessary delays in approvals for routine administrative matters,” said James Zimmerman, a partner in the Beijing office of international law firm Perkins Coie.
Jake Parker, vice-president of China operations with the US China Business Council, said customs officials were inspecting all imports by one US car company, compared with a previous 2 per cent average.
Parker said also some US food importers were subject to longer quarantine periods at airports, resulting in food spoiling or being sent back to the US.
In addition, US firms were concerned that the Chinese government was “deliberately” encouraging Chinese domestic companies to diversify supply chains away from the US products and services in areas such as agriculture and semiconductors.
“We know for sure the Ministry of Commerce has encouraged Chinese agricultural companies to procure soybeans, hogs and others from countries outside of the US,” Parker said.
At the local level, US companies were under tighter scrutiny for possible violations of labour, advertising and environment regulations, infractions that could result in hefty penalties, he said.
“There is a variety of different ways to be implemented. We are just beginning to see what they are now,” Parker said.
“The key point is it is very difficult for us to find a causative link between US-China trade conflicts and those actions. Never have they been stated specifically by Chinese authorities, but we are seeing anecdotal evidence that it may relate to that link.”
Parker also said big iconic US companies were concerned about the risks of anti-Americanism and boycotts of their products in China.
Zimmerman, a former chairman of the American Chamber of Commerce in China, said Beijing had many tools it could use to respond to “chest-thumping” by US President Donald Trump, including restrictions on rare earth exports and tourism, as well as “creeping” interference in American business operations in China.
The central government has also been asking the international business community about the effects of the tariffs and the possibility of restarting trade talks.
“But it’s a matter of time [before] it will be more convenient for the Chinese government to apply heavy pressure on the business community,” he said. “This would be a way to ‘rally’ the support of the business community to start complaining to Trump about his bully tactics.”
The White House has also hinted at reviving talks – along with brandishing more tariffs, carrot-and-stick tactics that China’s Ministry of Commerce said on Thursday would not work on Beijing.
Observers said there had been no substantial contact since trade talks stalled in late June, and Beijing appeared to more resistant to pressure from the White House.
“With each successive round of tariffs, Trump continues to back China into a corner. There is no off-ramp or no exit plan. By continuing to up the ante, Trump is, in effect, publicly demanding an unconditional surrender from Beijing,” Zimmerman said.
“But we all know that’s not going to happen given the nationalistic fervour his tactics generate and President Xi has too much to lose domestically if he is viewed as appealing, actually kowtowing, to Trump.”
Observers also said any agreement now would mean big concessions from China and could only lead to very short-lived truce, encouraging Trump to push for deeper compromises from Beijing.
“What we can expect is that the interlocutors on both sides will look for every backchannel opportunity to come back to the table. Once there, we can expect a ceasefire under a heavy cloud of distrust and with little room for a meaningful consensus,” Zimmerman said.
Source: South China Morning Post