President
Donald Trump’s tough talk on trade with China, including threats of
punitive tariffs and accusations of illegal currency manipulation, is
bringing long-simmering tensions between the world’s two largest
economies to a boil. And that could have ramifications for many U.S.
companies.
About a dozen Fortune 500 companies rely on China for more than 50 percent of their annual sales, per a recent Morgan Stanley (MS) report to clients. Semiconductor maker Ambarella (AMBA) gets 90 percent of its revenue from China, and other tech firms, such as Marvell (MRVL) and Qualcomm (QCOM), get more than 50 percent of their sales from the world’s most populous country.
Some of the U.S.’ biggest companies make significant profits in China
CBS MoneyWatch/Irina Ivanova
China also looms large for Apple (AAPL).
The nation has surpassed the U.S. as the biggest iPhone market. It also
is a big revenue-generator for casino operators such Las Vegas Sands (LSV) and Wynn Resorts (WYNN), which have invested heavily in the Macao gaming market in recent years.
Boeing (BA)
is expecting big things from China, predicting last year that the
country would need $1 trillion worth of aircraft over the next two
decades. General Electric (GE) also is eager to expand its foothold in China and is partnering with companies there to expand into other emerging markets.
U.S. farmers also depend on China, which is now the second-largest market for American agricultural exports, worth $20.2 billion as of 2015.
Mr.
Trump this week scrapped the 11-nation Trans-Pacific Partnership (TPP)
trade agreement that his predecessor Barack Obama negotiated. It didn’t
include China as a member and was at least partially aimed at stemming
China’s rising economic power across Asia-Pacific.
The new president’s anti-TPP move was expected because he had
criticized the deal during the campaign. Killing the TPP, though, could
have unintended consequences. Economists at research firm Capital
Economics argue that Mr. Trump’s decision “created an opportunity for
China to expand its influence in Asia.”
Since winning the
election, trade isn’t the only area in which Mr. Trump has ratcheted up
his war of words with Beijing. In early December, he spoke with
Taiwanese President Tsai Ing-wen and signaled he might abandon the
decades-long “One China” policy, which views Taiwan as a “renegade
province” of China. He also has joined the international condemnation of
China’s island-building in international waters in the South China Sea.
“Neither
side wants a trade war, but there is a risk of escalation from these
trade disputes,” said Michael Hirson, Asia director for the Eurasia
Group. “There also is a risk if President Trump presses China on some of
these very sensitive security issues like support for Taiwan and
territorial disputes in the South China Sea.”
Should trade
tensions escalate, China and the U.S. likely would target specific
industries using tools like filing complaints with the International
Trade Commission alleging unfair government subsidies. Competitors to
U.S. companies, such as Boeing’s European rival Airbus, could benefit as
might other national players in the agricultural market, such as
Australia and Canada.
“China may retaliate by saying ‘I will not
import as many soybeans from the United States,’” said Yukon Huang of
the Carnegie Endowment for International Peace. “I will no longer allow
Apple to operate here and use China as the base of assembly and exports.
I will buy Airbus planes rather than Boeing planes. I will no longer
buy turbine engines and nuclear power plants from General Electric.”
U.S. companies were already feeling uncomfortable in China. A recent survey released
by the Chinese-American Chamber of Commerce found that 81 percent of
respondents felt less welcome in China, and another 55 percent found
that foreign companies were treated worse there than local ones.
“Getting
anything done in China or exporting to China requires various
approvals,” said Hirson, formerly the Treasury Department’s top official
in Beijing. “Given there is no real separation between the Communist
Party and the regulatory regime, it’s quite easy for the government to
put regulatory pressure on American firms.”
Even much closer to home, trade is a flashpoint for Mr. Trump. On Thursday, Mexican President Enrique Pena Nieto canceled a planned visit
to the White House amid the dustup over President Trump’s plans for a
multibillion-dollar wall on the U.S. Southern border (and add a 20
percent import tax on Mexican goods to pay for it) in addition to his
intention to renegotiate or scrap the North American Free Trade
Agreement.
In a recent interview with CBS Morning News, FedEx (FDX) CEO Fred Smith called on Mr. Trump to “rethink” his trade positions.
Smith noted that the average American family benefits from trade “to
the tune of about $13,000 in lower-price goods than would otherwise be
the case.”
European Trade Commissioner Cecilia Malmström described President Trump’s tougher policies on trade and immigration as “doomed to fail.”
For now, though, his “America First” vow is carrying the day.
ROLAND SAN JUAN was a researcher, management consultant, inventor, a part time radio broadcaster and a publishing director. He died last November 25, 2008 after suffering a stroke. His staff will continue his unfinished work to inform the world of the untold truths. Please read Erick San Juan's articles at: ericksanjuan.blogspot.com This blog is dedicated to the late Max Soliven, a FILIPINO PATRIOT.
DISCLAIMER - We do not own or claim any rights to the articles presented in this blog. They are for information and reference only for whatever it's worth. They are copyrighted to their rightful owners.
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