Business leaders must push back on US-China decoupling and demand de-escalation of trade tensions

With the agreement on a limited deal to halt the trade war, we may finally be seeing a de-escalation between the United States and China. Under a phase-one trade deal, both sides committed to halting further tariff hikes, giving business leaders time to take stock of the damage and begin planning.

As negotiators turn their attention to phase two, we must take the opportunity to encourage politicians to put the relationship back on track for both countries’ economic well-being.

Both countries have been battered by the trade war. Under pressure from tariffs, Chinese exports to the US fell 12 per cent year on year in the first half, hurting Chinese businesses and American consumers alike. It is easy to forget that trade with China has made Americans richer by making the products they buy cheaper. A recent study found that China’s entry to the World Trade Organisation led to a 7.6 per cent reduction in manufacturing prices in the US. As tariffs go back up, American wallets have started to feel lighter.

US businesses are hurting too, with exports to China falling 19 per cent. Beyond the immediate pain, there could be long-term consequences for US exporters, who are losing market share in agriculture, energy and even timber, with US hardwood exports to China in June half what they were a year prior. Meanwhile, Russian timber suppliers have gained ground in China, threatening to supplant American exporters in the long term.

Investors are also less certain than ever. Bilateral direct investment flows are down nearly 70 per cent since 2016. Little wonder, since the US is opening investigations into long-completed cross-border deals, such as the acquisition of Musical.ly by TikTok’s owner ByteDance. New rules are tightening foreign investment in emerging technologies. Some are even calling for greater restrictions in cross-border flows of stocks and bonds, just as China has put the liberalisation of its capital markets into higher gear.

The trade war and US-China decoupling is affecting the global economy. The International Monetary Fund’s global growth forecast for the year is a paltry 3 per cent – the lowest since the global financial crisis.

Those who call upon American companies to leave China fail to recognise how costly and difficult uprooting factories and supply chains would be. It is no coincidence that China spends 100 times more on infrastructure than its neighbour, Vietnam, a dynamic country that is nonetheless no replacement for the Chinese market. China, a country with 13 of the world’s largest ports, is not an easy partner to replace.

These are all compelling reasons to put the US-China relationship back on track, and positive Chinese reform momentum is reinforcing the need to re-engage.

In 2011, China had 180 business activities marked as prohibited or restricted for foreign investors. This year, it has transitioned to a “negative list” of restricted sectors containing only 40 industries. The foreign investment law taking effect on January 1 will level the playing field for foreign investors and offer greater protection for the intellectual property rights of foreign investors.

China is starting to deliver on its promised reforms, and these efforts are showing in many independent metrics. For example, China’s efforts to cut red tape have led the World Bank to upgrade China’s Ease of Doing Business ranking, most recently from 45th to 31st.

The most important testament to Beijing’s reform efforts is that many foreign businesses are doubling down on their investments in China. Thanks to China abolishing joint venture requirements in electric vehicle manufacturing, Tesla has built a factory in Shanghai without being forced to work with a local partner or give up any technology. Beijing is also lifting controls on financial institutions, allowing JP Morgan to buy a controlling stake in a Chinese securities firm for the first time. With the conditions for better intellectual property protection in place and joint venture requirements reduced, Germany’s BASF recently broke ground on a new US$10 billion wholly-owned petrochemical complex in China.

For decades, business leaders have played an important role in promoting constructive and mutually beneficial US-China relations. The recent disenchantment that business leaders felt over unresolved issues in the economic relationship led the business community to push for a tougher stance with China. But with reforms under way, it is time for the business community to resume its crucial role as a moderator of the US-China relationship, or risk further escalation at great cost to both countries and the global economy.

To start with, business leaders can do a better job of informing policymakers about the costs of continued hostility. After all, decoupling with China would not come cheap. What are the costs of protectionist economic policies that hurt competition? What is the cost of restricting research collaborations, ranging from climate change to breakthrough medicine? The business community can – and must – deliver these answers to get the relationship back on track.

Can the business community resolve the trade war?

Business leaders are also best positioned to keep both sides honest. We will see first-hand whether China’s foreign investment law delivers the promise of preventing forced technology transfer, or if Chinese businesses are treated fairly in the US. When things are going in the right direction, we should make sure these achievements are recognised and encourage even greater progress. When they are not, we must speak up.

This is a critical opportunity for business leaders. We must be advocates for de-escalation and engagement, and not let the voices of division and discord sow continued disintegration. The US, China, and the world will be better off for it.

Dominic Ng is chairman and chief executive officer of East West Bank