As trade tensions rise, American firms are facing an increasingly complex environment in China, while Chinese companies are looking for ways to adapt — all that may present new opportunities for Chinese businesses, analysts say.
On Friday, China announced plans to impose additional duties on $75 billion worth of American goods on Sept. 1 and Dec. 15. In response, U.S President Donald Trump tweeted later that day his administration would also raise tariffs on $550 billion of Chinese imports.
The latest round of tariff announcements in the last few days means that by the end of the year, essentially all Chinese goods exported to the U.S. will be subject to duties.
Although that adds to the burden on Chinese companies, which already face pressure from a slowdown in the domestic economy, data and other analysis indicate businesses in the mainland are finding ways to remain resilient — even if it sometimes means absorbing the costs of tariffs.
“I’m convinced the China-U.S. trade tensions is a long-term situation,” said Wei Jianguo, a former vice minister at the Ministry of Commerce. He told CNBC on Sunday that while the Chinese side awaits a fair and equal trade deal, the country has made preparations to counter any negative impact from trade tensions.
“We are not afraid,” Wei, who is currently vice chairman and deputy executive officer at Beijing-based think tank China Center for International Economic Exchanges, said in a Mandarin-language phone interview translated by CNBC.
He laid out four ways in which China is bolstering its own businesses. They are:
1. Increasing government support;
2. Opening channels to other international markets through programs such as free trade zones and the Belt and Road Initiative — a Beijing-led massive infrastructure project;
3. Developing a higher-quality operating environment for state-owned and foreign enterprises; and
4. Implementing policies such as tax and fee cuts.
What it means for China businesses
The latest retaliatory tariffs mark a reversal from an agreement between Trump and Chinese President Xi Jinping at their meeting in late June, when they agreed not to levy duties on goods from each other’s country.
“That breach, and the limited movement from the US in relaxing restrictions on Huawei, means that Xi has effectively given up on efforts to curry favor with Trump,” Michael Hirson, practice head, China and Northeast Asia, at consulting firm Eurasia Group, said in a note Saturday Beijing time.
“China’s leaders have likely not made a definitive decision yet to rule out a trade deal with Trump until after the US election, ” Hirson said. “However, they are increasingly skeptical about Trump’s viability as a negotiating partner and (are) no longer willing to make significant concessions to appease him.”
If investors are concerned about the impact of escalating trade tensions to American corporations, Chinese companies may start finding more business opportunities.
“In the short term, increased U.S. tariffs will have a negative impact on the profitability of Chinese enterprises,” Wang Zhe, senior economist at Caixin’s think tank, said last Monday in written commentary to CNBC.
“In the long term, if the China-U.S. trade tensions continue, they will impact the structure of the global industrial chain,” Wang added, according to a CNBC translation of the Chinese-language comments. “Of course, this will also force domestic companies to change their production methods and promote transformation and upgrading (of their operations).”
Analysts noted that another consequence of the trade tensions may be that Chinese companies gain greater market share, at the expense of U.S. businesses. Already, data and company reports indicate how Chinese companies are shifting agricultural purchases away from the U.S. to other countries, especially those in Latin America.
Trump urges US firms to leave China
On Friday, Trump said in a tweet that U.S. companies “are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. ” It was not immediately clear under what authority or how the president could implement such orders.
“If it does however result in US companies, to one degree or another, vacating the China market that would presumably open opportunities for Chinese companies to fill the void,” Stephen Olson, research fellow at the nonprofit Hinrich Foundation, said in an email Sunday.
More significantly, he said “such a move would be an unprecedented rupture in the trade and economic relationship between the two largest economies in the world” that would create uncertainty that’s bad for both Chinese and U.S. companies.
“It is important to keep in mind that US business has been a positive example for progress in China ... American companies bring ideas, values, and examples that are pervasive, consistent catalysts for progress,” said Parker. On the other hand, if U.S. companies left China, they would miss out on a major global growth opportunity.
“The only way to resolve the many challenges US companies face operating in the China market is for the two sides to continue negotiations and find a compromise that removes tariffs and sets the relationship on a more stable, predictable and constructive trajectory.”
Reference: CNBC
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