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Containers are loaded onto a cargo ship in Qingdao. China imported US$140 billion of US products last year but exported US$400 billion of goods to America. Photo: Chinatopix via AP

US deals may become ‘political footballs’ as China hits back in trade row

Beijing could restrict US investment in the country and order Chinese firms not to do business with US companies, observers say

Beijing could take measures to restrict US investment in China and tell Chinese companies not to do business with American firms, as the trade row between the two countries deepens, observers say.

Foreign business groups said they had already seen cases where one or two European companies had gained procurement advantages as a result of the trade tensions, while some American firms were considering diversifying their investment outside China – though they stressed there was no indication of a trend.

The dispute worsened this week after US President Donald Trump announced on Monday that Washington would consider slapping tariffs on a further US$200 billion of Chinese products, and Beijing threatened to retaliate with forceful “qualitative and quantitative” countermeasures.

US President Donald Trump said Washington would consider slapping tariffs on a further US$200 billion of Chinese products. Photo: AP

China was likely to use “more underhanded and damaging forms of retaliation such as instructions to Chinese companies and consumers to channel their business away from American companies, which also includes services and goods”, said James Zimmerman, a partner in the Beijing office of law firm Perkins Coie.

“There are always substitutes,” said Zimmerman, former chairman of the American Chamber of Commerce in China. “Retaliation by Beijing is a given, and the Chinese are prepared for a tit-for-tat relationship for the long haul knowing that Trump himself can’t stomach an interminable trade war.”

A former American trade official, meanwhile, said US-based multinational companies had been keeping a low profile in China amid concerns they were vulnerable to moves by the Chinese government that could make it difficult to operate in the country.

China imported some US$140 billion worth of US products last year but exported US$400 billion of goods to America, giving it limited capacity to match Washington in punitive tariffs.

Beijing is ‘prepared for a tit-for-tat relationship for the long haul’, according to former AmCham chairman James Zimmerman. Photo: Reuters

But US investment in China exceeds Chinese investment in America. By the end of last year, US companies had “significantly more historical investment” in China [US$256 billion] than Chinese firms had in America, according to a report by the National Committee of US China Relations and Rhodium Group in April.

Wang Yong, a professor of international relations with Peking University, said if the dispute escalated, China could levy additional and hefty tariffs on key US products, launch antitrust investigations and exclude US companies from any new measures to open up the market.

According to Zimmerman, Beijing was likely to slow down approvals for US investment and deals would “end up being kicked around like a political football as we have witnessed with the Qualcomm/NXPI transaction [which is still under review by the Chinese authorities]”.

He also said China could channel its tourism dollars away the US and towards friendlier destinations as it had done previously with South Korea and the Philippines amid diplomatic tensions.

Smartphone maker Huawei Technologies is among Chinese companies operating in the lucrative US market. Photo: Bloomberg

“The lasting damage is that American companies have built bridges for three decades that might take years to rebuild,” he said.

Rising nationalism in China could also hit sales of US products in the country as it did during a boycott of South Korean goods and tourism over Seoul’s decision to deploy the THAAD (Terminal High Altitude Area Defence) system. Beijing was furious about the anti-missile shield, which it sees as a threat to its security.

European firms, meanwhile, are worried that tariffs could disrupt global supply chains and production, possibly hurting market sentiment, according to Mats Harborn, president of the EU Chamber of Commerce in China.

Harborn said that while European companies shared the US government’s concerns about China’s trade practices, they tended to disagree that tariffs solved problems such as uneven regulation and restrictions on market access.

Mats Harborn said European firms feared the tariffs could disrupt global supply chains and production. Photo: Handout

“Time is running out for China to continue its reform promises,” Harborn said, adding that Beijing had to follow through on its promises this year if it were to ease trade tensions with Washington.

Jake Parker, vice-president for China operations at the US-China Business Council, called on the two sides to go back to the negotiating table, saying a small window was still open for talking before the tariffs took effect.

The sparring could see firms putting their plans on hold, according to Zimmerman.

“The end result is that this brinkmanship on both sides will jolt the markets and may force companies to delay investment plans until some level of certainty is restored,” he said.

This article appeared in the South China Morning Post print edition as: beijing ‘can find ways to squeeze u.s. firms’
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