On 3 November 2020, the United States electorate will head to the polls to decide who will lead the world’s most powerful nation in the next four years. As Donald Trump and Joe Biden battle it out to be the chief architect and implementer of US foreign policy, one issue looms large, and unsurprisingly, a crucial talking point in the election: China.
Of particular interest by economists, as well as wealth managers around the world, are the issues concerning trade and investment.
In 2018, China saw a huge increase in tariff on imports to the US. This is a calculated effort from the Trump administration to force Beijing to reduce subsidies on manufacturing companies based in China and curb their difficult demands on US companies.
In January 2020, the two countries came to agreement by signing a trade deal which knocked back some of the tariff rates but failed to address the major issues. This was after an entire year of back and forth on tariff which considerably slowed and depreciated the economy on a global scale.
Nonetheless, Beijing has promised to increase import of US goods worth 200 billion dollars in the space of twenty-four months.
In the meantime, the US government is pushing to have American companies cease manufacturing and sourcing of materials from China.
US Companies’ Reaction to Trade Issues
These new restrictions have predictably caused US companies untold tension and pessimism. Every day, the chances of the trade tensions reducing or ending grows slimmer because neither Beijing nor Washington are showing signs of relenting. None of the companies are looking forward to the threat of moving their companies over to the States.
The American Chamber of Commerce based in Shanghai conducted a survey and released the results of their findings. Ninety-two percent of the respondents agreed that they would rather keep their companies in China despite the persistent fracture in the US-China relations.
The survey revealed that over a quarter of these firms are aware that the dispute between China and US may last indefinitely. A year ago, only 17% agreed to that possibility. In 2019, 13% of the companies believed that the issues would be settled with three to five years, a number that has since increased to a fifth of the respondents.
However, about 14% agree that the issues will be over in about twelve months.
In a quote, AmCham Shanghai stated that, “What is likely underpinning this sense of negativity is concern about broader US-China relations.” An opinion that outlined responses from over three hundred and forty companies.
The said survey was conducted from June to July when the conditions seemed to worsen even after a trade agreement by both countries.
About 1400 companies in China participate in the yearly survey conducted by the American Chamber of Commerce in Shanghai, an NPO (Non-Profit Organization) that strives to bridge the thorny trade gap between the US and China.
Currently, relations between China and US have continued to sink to a historic low as they continue to disagree and punish each other from issues ranging from the Coronavirus pandemic to technological control.
Donald Trump severed the special trading relationship in July between US and Hong Kong. That privilege had formerly exempted Hong Kong from some tariffs. In additions, both countries made moves to shut down their consulates in Chengdu and Houston.
By August 2019, Washington issued a sanction to Chinese government officials citing that they undermined Hong Kong’s autonomy, with Carrie Lam – the leader – inclusive.
When suspicions rose that TikTok and WeChat could be used to spy on the US government, Donald Trump issued threats to ban the popular apps from the US.
While 32% of the respondents agree that the bad relationship between the countries is sourly affecting their ability to keep their staff, they know that leaving China is completely out of the question. Even with Trump’s order to leave the country in 2019, and in recent weeks, played around with the idea of “decoupling” the world’s largest economies.
These companies state that China still provides several benefits. For instance, some firms are focused on tapping into the large number of middle-class citizens. While many others rely heavily on China for manufacturing. According to 2020 AmCham survey, the number of companies that said China aided the growth of their profit margin increased from 9.4% to 32%.
In agreement to the above data, President of AmCham in Shanghai, Ker Gibbs said, “US businesses in China would like to see the two countries resolve their outstanding issues quickly and reduce tensions.” Gibbs stated, “A workable cooperative framework for the next decade would be a good place to focus discussions.”
The Long Term View
The relationship between US and China is reaching a dangerous point. The already fragile relationship is on the brink of total collapse and we could only hope that in the coming days, the relationship could improve for the better. People from all over the world are pinning their hopes that the coming 2020 US presidential elections will provide a pathway for calmer, more collaborative partnership between the two great powers. As a famous world leader once quipped: “The forces that divide us are not as strong as those that unite us.”
Image: Andrea Izzotti / Shutterstock.com
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