Ordering U.S. companies out of China is wishful thinking

China Plus Published: 2019-08-25 21:59:06
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Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".

China has been forced to come up with counter measures after the United States imposed 10 percent tariffs on another 300 billion U.S. dollars’ worth of Chinese imports. Some US politicians responded by ordering U.S. companies operating in China to leave, and find an alternative or move investments and manufacturing home.

An aerial view of Tesla’s Gigafactory in Shanghai. [File Photo: VCG]

An aerial view of Tesla’s Gigafactory in Shanghai. [File Photo: VCG]

Similar remarks have consistently been made since trade friction between China and the United States started over a year ago, This is actually an act of trade protectionism under the guise of administration measures. It not only violates the rights of U.S. companies to do business in China, it will also damage the global economic order.

There is a stable global network that consists of value chain, supply chain and industrial chain. Multinational companies are trying to turn maximum profit by allocating their resources throughout the world under the laws of the market economy. They are not likely to follow blindly administrative measures, therefore remarks that go against the economic laws from certain people in the United States have been unwelcome.

The National Retail Federation(NRF)recently released a statement saying that finding alternative supply bases is a “costly and lengthy process”, and that it is “unrealistic” for American retailers to move out of China, the world’s second-largest economy. “Our presence in China allows us to reach Chinese customers and develop overseas markets,” said NRF Senior Vice President for Government Relations David French in the statement. “This, in turn, allows us to grow and expand opportunities for American workers, businesses and consumers,” French said.

The U.S. Chamber of Commerce also noted in a statement that “U.S. companies have been ambassadors for positive changes to the Chinese economy that continue to benefit both our peoples.” The statement also urged “the administration and the government of China to return to the negotiating table to complete an agreement.”

The Wall Street Journal ran an article saying that some global manufacturers that had been meaning to give up the Chinese market have finally realized that countries such as Vietnam are no comparison to China as a manufacturing destination. Moving their production centers out of China is impossible.

China’s economic growth is becoming more and more quality-oriented. As it transforms economically and upgrades along with the benefits that come from the reform and opening up policies, China’s overall competitiveness as a destination for investment will remain unmatched.

China has an enormous market of 1.4 billion people, a growing middle class group, a workforce of hundreds of millions, a network of modern infrastructure, and the world’s most comprehensive manufacturing industries. All these come together to give the Chinese market great potential and vitality. In 2017, sales volume of American companies in China reached 700 billion U.S. dollars, and their profit exceeded 50 billion. A study by Goldman Sachs in 2018 showed that if Apple were to move all its manufacturing and assembly lines back to the U.S., production costs would increase by 37 percent.

Faced with the protectionism which goes against the global trend, China significantly lowered the threshold for foreign investment, boosted the development of its service industry, accelerated the opening up of the finance industry, and strengthened the protection of Intellectual Property Rights. These measures reassured foreign companies of their opportunities in China. A World Bank report says China stood in 32nd place globally in the business environment rankings last year, becoming one of the fastest improving economies in that regard.

Because of its huge potential, over 24,000 new foreign companies have established their businesses in China as of the first seven months of this year, against the backdrop of a three-year decline in global direct foreign investment. China’s actual use of foreign capital reached 533 billion yuan (76 billion U.S. dollars) from January to July this year with an increase of 7.3 percent from the same period last year. Leading American medical device company Thermo Fisher recently invested in a new manufacturing center in the eastern Chinese city of Suzhou; water treatment equipment maker Pentair invested an additional 6 million U.S. dollars in sales and marketing in China this year. These are all good signs that American companies favor the Chinese market.

Renowned American motorcycle maker Harley-Davidson transferred part of its manufacturing out of the United States despite political pressure, and there are many more such examples that only make it more obvious that tariffs will not keep American companies from doing businesses in China. Instead they will force “Made in the United States” out of the country and will bring more risks that will hollow out American industries. Undoubtedly, an unexpected consequence for many Americans.

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of chinaandgreece.com, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.