USCBC report takes a deep dive into U.S.-China business relations and impact of tariffs

To say the relationship between the United States and China is complicated is an understatement. And that is even more clear today, given the impact of the ongoing COVID-19 pandemic on their respective economies and the global economy, at larger, coupled with the increasing tensions between the two global superpowers embroiled in a trade war and at odds over the origins of COVID-19, too.

But, even with that as a backdrop, a membership survey issued this week by the US-China Business Council (USCBC), which represents more than 200 companies with decades of experience in China, provided some insightful and surprising takeaways.

Data for this survey was based on feedback collected in late May and June from more than 100 USCBC member company executives, with a little more than two-thirds of those companies in China and one-third based in the U.S.

One of the report’s key findings related to the Phase One Trade Deal inked between the U.S. and China in January, with 88% of the respondents having a “positive or somewhat positive view of the agreement.”

USCBC noted that responses, in recent months, from member companies, stated that U.S. companies’ support for the agreement “stems less from the commitments themselves, but instead, from the perception that the agreement is a stabilizing force in an otherwise rapidly deteriorating bilateral relationship.”

“Companies are now seeing the fruits of the agreement, particularly the market openings,” said USCBC President Craig Allen in a statement. “We need to sustain and grow those jobs in future years, while finding ways to reduce conflict in other areas of the relationship.”

What’s more, a cornerstone of the Phase One Trade Deal focused on halting any further tariff increases, with tariffs remaining intact on $370 billion worth of Chinese goods and more than $110 billion worth of U.S. goods.

And it added that 7% of respondents maintain the benefits of the Phase One deal outweigh the costs of tariffs and another 36% indicated costs outweigh the benefits of the deal, with 56% noting it is still too soon to say, which the report said suggests that “the jury is still out on the Trump administration’s policy approach to China.”

What’s more, the report also said that the U.S.-China relationship remained front and center as the top challenge for U.S. companies in China.

“From investment decisions to cyber security and standards setting, the emerging competition between the United States and China pervades nearly all aspects of company operations in China,” USCBC said. “Returning to a stable and constructive US-China relationship is of the utmost importance to USCBC and our member companies.”

The importance of augmenting that relationship was made clear, with the survey indicating that 86% of USCBC members said that bilateral trade tensions have impacted their business with China.

And there was no shortage of reasons cited in the survey relating to the impact of U.S.-China trade tensions on business, including:

• lost sales due to customer uncertainty of continued supply, at 49%;
• shifts in suppliers or sourcing due to uncertainty of continued supply, at 46%;
• lost sales that have been implemented by China, at 39%; and
• lost sales that have been implemented by the United States, at 39%, among others

But despite these concerns USBC found that its U.S. member companies remain focused on a long-term commitment to China, with 83% viewing China as the number one, or in the top five, priorities for global strategy, and almost 70% saying they are optimistic about the commercial prospects of the market over the next five years.

With anecdotal reports of U.S. companies looking to move production operations out of China and return operations back home, the report painted a much different picture, with 87% of companies indicating they have no plans to do so. And only 4% said they have actually done that, driven by lagging consumer demand in China, while 11% pointed to production shifts to other global regions, with Thailand and Mexico leading the charge.

That theme has been echoed a fair amount, of late, especially since the onset of COVID-19 in mid-March.

A recent report from Gartner, which was based on feedback from 260 global supply chain leaders surveyed in February and March, found that 33% of respondents had moved sourcing and manufacturing activities out of China or they intend to do so over the next two-to-three years.

Gartner added that the survey shows that global supply chains have been dealing with disruption, in advance of the COVID-19 pandemic, due, in large part, to the United States-China trade war, which have highlighted how global supply chain leaders became aware of the weakness of their globalized supply chains and also question the logic of heavily outsourced, concentrated, and interdependent networks, according to Kamala Raman, senior director analyst with the Gartner Supply Chain Practice.