Bloomberg is reporting this week that the U.S.-China feud is “getting nasty with red tape as a stealth weapon.” The article says the countries are “moving beyond trade threats to exchanging regulatory punches that threaten a wide range of industries including technology, energy and air travel.”
The two have blacklisted each other's companies, barred flights and expelled journalists -- to the point that the unfolding skirmish is starting to make companies nervous that the trading landscape could shift out from under them. “There are many industries where U.S. companies have made long-term bets on China's future,” said Myron Brilliant, the U.S. Chamber of Commerce's head of international affairs. Now, they're “recognizing the risk.”
China will look to avoid measures that could backfire, said Shi Yinhong, an adviser to the nation's cabinet and a professor of international relations at Renmin University in Beijing. Any sanctions on U.S. companies would be a “last resort” because China “is in desperate need of foreign investment from rich countries for both economic and political reasons.”
Still, pressure is only expected to intensify ahead of the U.S. elections in November, as President Trump and presumptive Democratic nominee Joe Biden joust over who will take a tougher line on China, Bloomberg said.
Trump has blamed China for covering up the coronavirus pandemic and accused Beijing of “illicit espionage to steal our industrial secrets.” Biden, likewise, has described President Xi Jinping as a thug, labeled mass detention of Uighur Muslims as unconscionable and accused China of predatory trade practices.
And, on Capitol Hill, Republicans and Democrats have found rare unity in their opposition to China, with lawmakers eager to take action against Beijing for its handling of COVID-19, forced technology transfers, human rights abuses and its tightening grip on Hong Kong.
China has repeatedly rejected U.S. accusations over its handling of the pandemic, Uighurs, Hong Kong and trade. China also has fired back at the Trump administration for undermining global cooperation and seeking to start a “new cold war.” Foreign Minister Wang Yi last month said China had no interest in replacing the U.S. as a hegemonic power, while adding that the U.S. should give up its “wishful thinking” of changing the country.
Both sides have already taken a series of regulatory moves aimed at protecting market shares. For example, the U.S. is citing security concerns in blocking China Mobile Ltd., the world's largest mobile operator, from entering the U.S. market. It's culling Chinese-made drones from government fleets and discouraging the deployment of Chinese transformers on the power grid. The administration has also tried to constrain the global reach of China's Huawei Technologies Co., the world's largest telecommunications equipment manufacturer.
Meanwhile, China prevented U.S. airline flights into the country for more than two months and, after the U.S. imposed visa restrictions on Chinese journalists, it expelled American journalists. It has stepped up its scrutiny of U.S. companies, with China's state news agency casting one probe as a warning to the White House. China also has long made it difficult for U.S. telecommunications companies to enter its market, requiring overseas operators to co-invest with local firms and requiring authorization by the central government.
One of the most combustible flash points has been the administration's campaign to contain Huawei by seeking to limit the company's business in the U.S. and push allies to shun its gear in their networks.
After suppliers found work-arounds, Commerce in May tightened rules to bar any chipmaker using American equipment from selling to Huawei without U.S. approval, a step that could constrain virtually the entire contract chipmaking industry. Although Huawei can buy off-the-shelf or commodity mobile chips from a third party, such as Samsung Electronics Co. or MediaTek Inc., going that route could force it to make costly compromises on performance in basic products.
Bloomberg thinks that both the U.S. and China have ample opportunities to ratchet up regulatory pressure. A bill passed by the Senate last month could prompt the delisting of Chinese companies from U.S. stock exchanges if American officials aren't allowed to review their financial audits.
And last week, as the U.S. State Department imposed visa bans on Chinese Communist Party officials accused of infringing the freedom of Hong Kong citizens, a senior official made clear the move was just an opening salvo in a campaign to force Beijing to back off new restrictions on the city.
Companies are still lured to China and its massive local market – and tensions with the U.S. don't overcome the Asian superpower's appeal. Just one-fifth of companies surveyed by the American Chamber of Commerce in China late last year said they had moved or were considering moving some operations outside of the country, part of a three-year downward trend.
However, China is no longer the lowest-cost manufacturer and companies are increasingly reluctant to invest there, said James Lewis, director of the Technology Policy Program at the Center for Strategic and International Studies in Washington. “Everyone would like to be in the China market – everyone wants it to be like 2010-- but things are changing.”
So, we will see. Certainly, the pre-election tensions amplify trade uncertainties, large and small. And, they boost the stakes involved – a making it essential for producers, as well as others, to watch this policy “dance” closely as changes and shifts emerge, Washington Insider believes.
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