or the past three decades, the U.S. economy has been powered by China being the factory floor for the world. Low-cost production of everything from automobiles and washing machines to medicines and all manner of consumer electronics in China has kept prices down for U.S. consumers and profits high for its corporations. This two-way trade has likewise fueled Beijing’s sustained, and meteoric, economic growth.
But the COVID-19 pandemic, which originated in China and has now gripped the United States, threatens to de-couple the world’s two largest economies. It’s a trend that started before the current health crisis, but shows signs of accelerating as deaths from the virus mount across the United States.
American companies, as a result, must be prepared for the U.S. and Chinese governments to take potentially aggressive steps in the coming months to intensify this de-linking. Washington and Beijing are blaming each other for the pandemic’s creation and rapid spread. And President Donald Trump and a number of leading American politicians, Republican and Democrat, have already talked of mandating actions to end the United States’ dependence on China for critical medicines and supplies that are required to fight the disease. At the same time, Beijing is gearing up for its soon-to-be-released next Five-Year plan that’s expected to prioritize reducing China’s dependence on everything from American technology to farm goods.
Cooler heads in the United States and China could still prevail in the coming months and push back against these calls for national distancing. Indeed, global health experts say much greater cooperation between Washington and Beijing, not less, is critical for the international community to defeat COVID-19 and usher in a global economic recovery. In one positive sign, neither the United States nor China has backed away from implementing commitments made last year under Phase 1 of what is hoped to be a new comprehensive trade agreement.
But there are signs the de-coupling mantra is now inextricably imbedded in the U.S. political system and will be a central theme in the 2020 presidential election. Leading Republican senators, including Marco Rubio and Tom Cotton, have introduced bills in recent weeks designed to force American companies and organizations to rupture their China supply chains and limit Chinese companies’ access into the U.S. market. The lawmakers, at times, have been supported by Democratic colleagues, but China increasingly looks to be a partisan issue as the election for the White House looms.
Beijing is gearing up for its soon-to-be-released next Five-Year plan that’s expected to prioritize reducing China’s dependence on everything from American technology to farm goods.
Beijing is gearing up for its soon-to-be-released next Five-Year plan that’s expected to prioritize reducing China’s dependence on everything from American technology to farm goods.
In such a divisive environment, firms operating in China need to be vigilant and work even harder to understand the political dynamics driving policy in both Washington and Beijing. Many multinationals have already begun diversifying their supply chains away from China, in part, because of the trade wars the Trump administration initiated against Beijing. New tariffs have significantly raised the costs for American companies producing in China.
Still, many multinationals don’t have the option to curb their China presence, or don’t have an economic imperative yet to do so. For them, devising and implementing new corporate strategies and protocols will be crucial for their survival in this rapidly changing geopolitical landscape.
These steps should include establishing an internal, in-house system to manage political issues and potential crises. Such systems will likely require companies to empower their local teams in China to make decisions on the ground without waiting for approval from the United States. Local staff is often more conversant with the hot-button issues in China than headquarters, and the need to move quickly is often paramount.
Companies operating in China at this time also need to develop strategies for how to protect their core businesses and technologies while determining what concessions they are willing to make in response to Beijing’s market access requirements. Executives’ ability to structure which parts of their business are in-China for-China, and which operations are for the globe, is difficult, but critical for success in a bifurcated world. To do this successfully, American companies need to stay on top of China’s constantly evolving industrial plans and respond quickly to opportunities and threats.
Multinationals in China also need to be in control of their government relations. In tense times like these, it’s a mistake to depend on their local partners who often have their own agendas and can leave foreign firms blindsided by government directives. Foreign firms also need to build bridges with local trade associations to gain access to timely information, and to the local media, who shape your company’s local image.
Finally, in this time of uncertainty, American firms need to focus on their relationships with local governments in China. While ties between Washington DC and Beijing are trending down to a dangerous level, Chinese provincial, county, and city officials remain eager to work with foreign business. Like anywhere: jobs, investments and taxes are what matters most in the real world.
a global affairs media network
Multinationals in China Need to Prepare for National Distancing
May 5, 2020
F
or the past three decades, the U.S. economy has been powered by China being the factory floor for the world. Low-cost production of everything from automobiles and washing machines to medicines and all manner of consumer electronics in China has kept prices down for U.S. consumers and profits high for its corporations. This two-way trade has likewise fueled Beijing’s sustained, and meteoric, economic growth.
But the COVID-19 pandemic, which originated in China and has now gripped the United States, threatens to de-couple the world’s two largest economies. It’s a trend that started before the current health crisis, but shows signs of accelerating as deaths from the virus mount across the United States.
American companies, as a result, must be prepared for the U.S. and Chinese governments to take potentially aggressive steps in the coming months to intensify this de-linking. Washington and Beijing are blaming each other for the pandemic’s creation and rapid spread. And President Donald Trump and a number of leading American politicians, Republican and Democrat, have already talked of mandating actions to end the United States’ dependence on China for critical medicines and supplies that are required to fight the disease. At the same time, Beijing is gearing up for its soon-to-be-released next Five-Year plan that’s expected to prioritize reducing China’s dependence on everything from American technology to farm goods.
Cooler heads in the United States and China could still prevail in the coming months and push back against these calls for national distancing. Indeed, global health experts say much greater cooperation between Washington and Beijing, not less, is critical for the international community to defeat COVID-19 and usher in a global economic recovery. In one positive sign, neither the United States nor China has backed away from implementing commitments made last year under Phase 1 of what is hoped to be a new comprehensive trade agreement.
But there are signs the de-coupling mantra is now inextricably imbedded in the U.S. political system and will be a central theme in the 2020 presidential election. Leading Republican senators, including Marco Rubio and Tom Cotton, have introduced bills in recent weeks designed to force American companies and organizations to rupture their China supply chains and limit Chinese companies’ access into the U.S. market. The lawmakers, at times, have been supported by Democratic colleagues, but China increasingly looks to be a partisan issue as the election for the White House looms.
Beijing is gearing up for its soon-to-be-released next Five-Year plan that’s expected to prioritize reducing China’s dependence on everything from American technology to farm goods.
Beijing is gearing up for its soon-to-be-released next Five-Year plan that’s expected to prioritize reducing China’s dependence on everything from American technology to farm goods.
In such a divisive environment, firms operating in China need to be vigilant and work even harder to understand the political dynamics driving policy in both Washington and Beijing. Many multinationals have already begun diversifying their supply chains away from China, in part, because of the trade wars the Trump administration initiated against Beijing. New tariffs have significantly raised the costs for American companies producing in China.
Still, many multinationals don’t have the option to curb their China presence, or don’t have an economic imperative yet to do so. For them, devising and implementing new corporate strategies and protocols will be crucial for their survival in this rapidly changing geopolitical landscape.
These steps should include establishing an internal, in-house system to manage political issues and potential crises. Such systems will likely require companies to empower their local teams in China to make decisions on the ground without waiting for approval from the United States. Local staff is often more conversant with the hot-button issues in China than headquarters, and the need to move quickly is often paramount.
Companies operating in China at this time also need to develop strategies for how to protect their core businesses and technologies while determining what concessions they are willing to make in response to Beijing’s market access requirements. Executives’ ability to structure which parts of their business are in-China for-China, and which operations are for the globe, is difficult, but critical for success in a bifurcated world. To do this successfully, American companies need to stay on top of China’s constantly evolving industrial plans and respond quickly to opportunities and threats.
Multinationals in China also need to be in control of their government relations. In tense times like these, it’s a mistake to depend on their local partners who often have their own agendas and can leave foreign firms blindsided by government directives. Foreign firms also need to build bridges with local trade associations to gain access to timely information, and to the local media, who shape your company’s local image.
Finally, in this time of uncertainty, American firms need to focus on their relationships with local governments in China. While ties between Washington DC and Beijing are trending down to a dangerous level, Chinese provincial, county, and city officials remain eager to work with foreign business. Like anywhere: jobs, investments and taxes are what matters most in the real world.
