Trade tensions hitting US businesses in China

ST's Asian Insider aims to ask the unanswered questions and seek the difficult answers - exploring global issues from an Asian perspective. Episode 2 discusses the ongoing trade war between the United States and China.
About 81 per cent of the companies reported that trade tensions have affected their business operations in China in the past year, up 8 percentage points from the year before.
About 81 per cent of the companies reported that trade tensions have affected their business operations in China in the past year, up 8 percentage points from the year before.PHOTO: AP

WASHINGTON - Trade tensions are putting American companies at a disadvantage in China, with nearly half reporting that they are losing out on sales in China in an annual survey out on Thursday (Aug 29).

The survey by the US-China Business Council (USCBC) also shows that companies continue to see China as an important market, despite President Donald Trump's recent urging of American companies to stop doing business with China and bring manufacturing back home.

But over a year into a trade war marked by escalating tariffs, companies are less optimistic about China than before, with more investing less in the country and planning to move operations out of it.

The survey by the USCBC, which comprises about 200 companies that do business with China, offers a snapshot of how tariff uncertainty and the trade conflict are affecting American companies in China. It also shows how longer-term trends like rising costs and unfair competition in China are causing them to shift their business strategies.

About 81 per cent of the companies reported that trade tensions have affected their business operations in China in the past year, up 8 percentage points from the year before.

They were hit by retaliatory tariffs from both the US and China, which the survey said led them to become less competitive in price.

"The trade war is having a tangible, negative impact on American companies. Almost one-half of our companies say they lost sales in China due to tariffs. This is a competitive benefit for European, Japanese or Chinese competitors," said USCBC president Craig Allen.

"Losing market share is easy and gaining it is very, very difficult. So these costs are potentially long term," he added.

This year, 40 per cent of respondents said they lost out on sales in China due to Chinese partners' concerns about doing business with American companies, seven times higher than the year before.

"Chinese customers are concerned about supply chain links that depend on American companies, which they increasingly view as unreliable business partners as a result of the volatility of the bilateral commercial relationship," said the report that accompanied the survey.

Trade tensions also caused 43 per cent of US companies to shift suppliers or sourcing, due to uncertainty over continued supply.

 
 
 
 

While the vast majority of US companies - 97 per cent - reported that their China operations remained profitable, fewer said they were optimistic about China in the long term, which the report attributed to Beijing's uncertain policy and regulatory environment, unfair competition and rising costs.

More companies said they reduced or stopped new investments in China - 17 per cent in the past year, twice as many as last year.

US-China tensions were behind the uptick, with 60 per cent of respondents pointing to increased costs or uncertainties due to the tensions as the reason for their decision, and 47 per cent citing the political climate for American companies in China. Neither reason was cited in previous years despite being an option, said the report.

Still, not many companies moved operations back to the US. About 3 per cent said they did so in the past year, a level in line with previous surveys. 11 per cent said they were moving their Chinese operations elsewhere, with more than half citing rising production costs in China.

But almost just as many said that increased costs from US-China relations contributed to their decision to move investments out of China, a sign that tariffs are increasingly denting profits.