This story just in from The New York Times
China
usually gets its way. In Washington, on Wall Street and in corporate
boardrooms, Beijing has used the country’s size and promise for decades to
quell opposition and reward those who helped its rise.
Those
days may be coming to an end.
As it
struggles with President Trump’s trade war, a maturing and debt-laden China is
discovering that it no longer has the same pull. Members of both political
parties in the United States favor a tougher stance against Beijing. Some old
business allies are standing on the sidelines or even cheering the Trump
administration’s strong stands.
China
could still prevail on the trade war’s major issues. But the conflict’s length
and severity reflect the growing perception that the country no longer holds
the promise that once enthralled politicians and businesses in the
United States.
Many American companies
with large, profitable businesses in China do not want to pay expensive tariffs
and worry that the United States is antagonizing the Chinese public, said
Ker Gibbs, the president of the American Chamber of Commerce in Shanghai.
But many of the same businesses also chafe at the numerous restrictions that
China has long maintained on foreign companies.
“We’re
looking at their expanding into global markets, and saying, ‘Wait a minute, why
can’t we do that here?’” Mr. Gibbs said.
China's
economic slowdown, which could hinder growth globally, is a major reason its
influence has ebbed. But there are other factors. The country’s heavy debts,
built up over years of lending used to spur growth, limit its options. If it
retaliates against the United States sharply by devaluing its currency or
shutting factories crucial to global supply chains, the moves could ricochet
and hurt its own newfound wealth.
Foreign
businesses have found it less appealing to make or sell their products in China
over the last several years because of heavy restrictions on foreign
businesses, stronger local competitors and rising costs. Mr. Trump’s tariffs
last year gave many businesses a final reason to look elsewhere.
Call it
the ABC supply chain, as in “anywhere but China.”
On
Wednesday, Kelly A. Kramer, the chief financial officer of Cisco, the big
telecom equipment supplier, told investors that the company had “greatly,
greatly reduced" its exposure to China because of the tariffs.
Morey, a company near
Chicago that makes rugged electronics for bulldozers and other outdoor
equipment, reluctantly paid more for printed circuit boards made in China after
Mr. Trump imposed 10 percent tariffs on $200 billion a year in Chinese imports
last fall.
With those
tariffs now rising to 25 percent, Morey executives have begun talking to
suppliers in Taiwan, South Korea and Singapore.
“I was
thinking this is a short-term issue that will go away,” said George Whittier,
the company’s president and chief operating officer, “and I don’t think you can
rationally think that any more.”
China holds a lot of
cards. It remains a huge profit source for Apple, Boeing, General Motors,
Starbucks and other major corporations. It can use its substantial financial
firepower and the government’s control over crucial economic levers to endure a
protracted trade conflict, while state-run media outlets help stem discontent
at home.
Chinese
officials and experts say the country can stand firm against Western pressure.
Even some advocates of more market-oriented policies say Beijing should just
make its own decisions now instead of tying them to a trade pact with
Washington.
“China
should focus on its own reform, which will eventually solve some current trade
war contentious issues,” said Zhu Ning, a Tsinghua University economist.
Still, China has lost
some of the swagger and appeal that once opened so many doors in Washington and
on Wall Street.
China
has long used its tremendous size and growth potential as both carrot and
stick. Companies that played by its rules could gain access to a
market of more than one billion people who were becoming increasingly
affluent and eager to spend. Companies that complained could be left out.
It
worked. G.M. and other companies caved in to demands like being
forced to take on local joint venture partners, knowing that they were training
future competitors. General Electric sold one complete diesel locomotive from
Erie, Pa., to China, then taught the Chinese to build their own. Apple censors
its App Store in China. When Google protested censorship and hacking, it was
mostly kicked out.
Businesses
then helped make China’s case in Washington. When China wanted
to join the World Trade Organization, the global trade club, it enlisted Wall Street’s help. Businesses helped
persuade successiveAmerican presidents to refrain from punishing China for
manipulating its currency, even as Beijing manipulated its currency. They fought efforts to raise
tariffs.
China
remains vital to many businesses, but the dynamic has shifted. It still grows
at a pace that developed countries envy. But its economy has slowed
significantly from rates that as recently as 2010 topped 10 percent a year.
Since Xi Jinping took power in 2012, the government has taken a stronger hand in business, requiring
foreign companies to forge ties with the Communist Party and demanding access to data.
Beijing has fewer ways to
strike back against the United States now. Its tremendous success in
nurturing its own homegrown industries, which has helped China’s economy rise
up the value chain, has reduced its imports of American goods, giving it fewer
items to hit with tariffs.
A decade ago, China
bought Jeeps made in Michigan by Chrysler, bulldozers and other construction
equipment made in Illinois by Caterpillar and huge diesel engines made
in Indiana by Cummins. Now Chrysler makes Jeeps in Changsha and
Guangzhou. Caterpillar makes construction equipment in Xuzhou. And Cummins
builds engines at factories in Beijing, Chongqing, Hefei, Liuzhou, Xi’an and
Xiangyang.
“China
has been so effective at squeezing manufactured imports out of its market that
it has really limited its options to retaliate,” said Brad Setser, a
Treasury official in the Obama administration who is now an economist at the
Council on Foreign Relations.
China’s imports from the
United States now fall mostly into four big categories: Boeing aircraft from
Washington State; semiconductors, mainly from Intel factories in Oregon;
farm products and energy from the Great Plains and Texas; and German-brand
sport utility vehicles from South Carolina and Alabama. Although China could
still shake the American political system if any harsh retaliation hurt
economic growth in the United States, it has fewer opportunities to target
electoral swing states and hurt Mr. Trump’s chances of re-election next year.
Slapping
tariffs on those industries could also have big drawbacks. China needs those
chips for its technology upgrades. Targeting Boeing planes would shift more
Chinese business to Airbus, giving the European aircraft maker more leverage in
negotiations with Beijing. On agriculture, China still does not grow enough
soybeans to meet its needs, so higher tariffs on American crops might simply
mean higher food prices down the line.
China
has also shown surprising vulnerabilities, like its dependence on American
semiconductor technology and software. Last year, when the United States briefly prohibited American companies from selling technology to
the Chinese telecommunications giant ZTE for violating
sanctions against Iran and North Korea, ZTE ground to a halt.
“The
trade friction has also been a cold shower that has made us see our structural
shortcomings more clearly,” said a front-page commentary in People’s Daily on
Monday that bore a pen name used to signal authoritative positions on
international relations.
China
has options besides tariffs, but they have disadvantages as well.
It could sell a large
chunk of the $1.3 trillion in United States Treasury debt that it holds. That
could temporarily push up American interest rates. But it would saddle China
with large losses. Beijing would have to find someplace else to park the money.
Its previous sales, undertaken mainly to shore up the country’s currency in
2015 and early 2016, did not affect the bond market much.
Another
option would be for China to let its currency slide in value against the
dollar, making its goods cheaper abroad and offsetting American tariffs. Doing
that could prompt the Trump administration to raise its tariffs
even higher. It might also tempt other countries to devalue their
currencies, setting off a potentially costly currency war. And a Chinese
devaluation could cause Chinese families and households to send their own
savings out of the country.
China
could crack down on American-owned factories in China or on those crucial to
the supply chains of American companies. But that could lead still
more multinational companies to consider leaving the country.
The
dilemma for China is that the longer the trade war lasts, the more companies may decide to invest elsewhere. For
now, domestic politics seem more important in China, with the leadership and
the general public reacting angrily to what is portrayed in the country as
peremptory American demands.
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