Chinese companies absent from DC lobbying on trade war
Instead of encouraging its own companies to join the trade war fight in Washington, China has turned to what may be an outdated playbook
This story is published in a content partnership with POLITICO. It was originally reported by Adam Behsudi and Marianne Levine on politico.com July 19, 2018.
The White House and Beijing may be escalating an increasingly hostile trade war with harsh words and cascading waves of tariffs, but there’s one battlefield where the Chinese aren’t fighting back: Washington.
US and European companies have been in an all-out sprint to hire lobbyists to battle for global free trade ever since President Donald Trump started tearing up treaties and slapping penalties on imports from furniture to auto parts. But even though Chinese firms stand to lose the most from Trump’s aggressive moves, only a handful of the very largest – such as tech giants ZTE and Huawei – have lobbyists on retainer or staff in the US.
The reason is largely cultural and historical. Many Chinese firms are partly government-owned, and they’re used to relying on officials in Beijing or their American business partners to fight for their interests. But they could be missing opportunities to get their products off Trump’s growing tariff lists. And advocates for Chinese investment in the US, which has plummeted to a seven-year low, fear the silence is just contributing to an increasingly hostile environment.
“I’ve been frankly trying to persuade Chinese companies to do more lobbying without a whole lot of success,” said Bill Black, president of the Greater Washington China Investment Center. “Seeing what was on the horizon, I had tried to convince them to work with local American communities to advocate for a more open and friendly approach to investment.”
Siva Yam, president of the United States of America-China Chamber of Commerce, a non-profit that represents US and Chinese companies, said business culture in China and internationally is “controlled and led by the Chinese government,” and Chinese companies are therefore less inclined to “openly doing lobbying.”
But meanwhile, with trade talks between the U.S and China at an impasse, Trump’s penalties are slamming Chinese exporters more than any others. Trump imposed steel and aluminium tariffs in March on a range of countries including China, and then this month slapped duties on an additional $34 billion in Chinese goods on the grounds that the move would protect US technology. Tariffs on another $16 billion of Chinese goods are likely to be imposed soon. And on July 10, his administration said it would move toward taxing an additional $200 billion in Chinese products ranging from handbags to toilet paper.
Beijing is fighting back with penalties on US goods. But instead of encouraging its own companies to join the fight in Washington, Chinese officials have turned to what may be an outdated playbook: urging US firms that do business in China to lobby the Trump administration. That worked in the past, but it’s not going to pay off the way it once did, said Stewart Baker, a partner at Steptoe & Johnson who works on international trade.
Baker said that despite US companies’ hopes for economic expansion in China, Beijing has made it clear that it intends to create a domestic industry to replace US companies in areas where US firms have an advantage.
“China for a generation didn’t have to do much lobbying over these issues because big US companies that believed they had an immense opportunity in China would do their lobbying for them,” Baker said. “But those days are gone because China has basically persuaded all of those big companies that they don’t have a great future in China.”
So far, it’s been largely left to US manufacturers to convince the Trump administration that penalties on materials they need will create hardships. After the president says he wants to impose penalties, companies have a chance to head them off because administrative agencies must gather public feedback before putting them into effect. Then, there’s also a process in which US firms and American subsidiaries of foreign firms can submit requests to have products removed from tariff lists after the fact.
US companies and American subsidiaries of foreign firms have filed more than 20,000 requests begging the Commerce Department to exclude certain imports from steel and aluminium tariffs, but only 19 companies have been granted those requests so far exempting steel products from Japan, Sweden, Belgium, Germany and China.
But many Chinese companies are unaware that the process exists. Sally Peng, head of the Asia-Pacific practice at the law firm Sandler, Travis & Rosenberg, said she conducted a “straw poll” of the audience at a recent event for a Chinese chamber of commerce to see how many business leaders knew about waivers from the Trump administration’s steel and aluminium tariffs.
“None did,” she told POLITICO.
Chinese companies haven’t been completely absent from the battle against US tariffs in Washington. In May, a handful of Chinese industry officials testified against some of Trump’s planned penalties before the United States Trade Representative. They included groups such as the China General Chamber of Commerce-USA and a subsidiary for a Chinese law firm.
One company, the US subsidiary of Chinese pharmaceutical company Novast Holdings, was successful in getting birth control removed from the initial list after the head of its US operation warned that it supplied between 10 and 20 per cent of the US market and the tariffs could lead to shortages.
Chinese companies have opted to take a more indirect approach, even though they are allowed to directly lobby for exemptions from China-specific tariffs.
Nicole Bivens Collinson, who leads Sandler, Travis & Rosenberg’s international trade and government relations practice, said some Chinese companies that act as suppliers to US companies have asked their partners to cover the costs of the tariffs, while others have suggested splitting or covering the costs of the tariffs so long as their US counterparts will push to get the tariffs removed.
The lack of a Chinese lobbying presence in Washington also could be contributing to a tide of negative opinion that’s helped push Chinese investment in the US to lows not seen since the great recession. Chinese investment dropped 90 per cent in the first half of 2018, compared to the first half of 2017, according to the Rhodium Group, an independent research firm. Chinese companies abandoned at least eight major attempted acquisitions worth more than $2.1 billion in the first half of the year because of regulatory scrutiny, Rhodium found.
And the trend could get worse. Congress is expected to approve legislation that would give the government broader authority to block foreign investment bids it deems to be harmful to national security.
But instead of pushing back, Chinese firms are ceding the territory.
The current hostile climate toward China means those companies are unlikely to invest in lobbying efforts any time soon.
“I think we’re going to go in the opposite direction,” said Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington think tank. “I think because of the toxicity of the relationship that you’re going to see even less of it going on in the future.”
Still, the Chinese have found one effective way of influencing Washington policy: going straight to the top.
After the Commerce Department imposed a seven-year ban on US firms doing business with telecommunications company ZTE when it was caught violating an agreement regarding sales to Iran and North Korea, Chinese President Xi Jinping asked Trump to intervene. Trump told Commerce Secretary Wilbur Ross to come up with an alternative punishment for the Chinese company, and the ban was lifted last week.
“Large, important companies like ZTE now have a precedent for Xi Jinping to intervene personally and successfully with President Trump, even on a matter as sensitive as Iran sanctions,” said Derek Scissors, a resident scholar and China expert at the right-leaning American Enterprise Institute think tank. “That’s as good a lobbying option as one can hope for.”