Home A List Article Contributor Submission Tensions Between China and U.S. Increase Pressure on International Companies

Tensions Between China and U.S. Increase Pressure on International Companies

As tensions between China and the United States continue to escalate, international companies are increasingly being forced to make strategic decisions about their presence in China. The disagreements between the two nations encompass a range of issues, including the coronavirus, spy balloons, the war in Ukraine, Taiwan, TikTok, and semiconductors.

A recent annual survey by the American Chamber of Commerce (AmCham) in China found that 55% of its more than 900 members no longer consider China a top three investment priority. Additionally, 66% of respondents view the “uncertainty of bilateral relations” as the most significant challenge in China, marking a ten-percentage point increase in the past year.

Major companies such as Coca-Cola, Intel, Pfizer, and Nike are among the 50% of respondents who believe China has become less welcoming to foreign businesses. Michael Hart, president of AmCham China, notes that American companies are “more negative than they have been in a long time” about conducting business in China.

Despite the geopolitical sensitivities, some companies, like JPMorgan Asset Management, want to expand their presence in China further. George Gatch, CEO of the asset manager, stated at a conference organized by JPMorgan Asset Management that he was closely monitoring frictions between the U.S. and China and remained optimistic about future cooperation between the two countries. Earlier this year, JPMorgan AM received approval to fully acquire a joint venture with Chinese partners, planning to remain active in China for at least another hundred years.

Other major asset managers, such as BlackRock, Fidelity, UBS, and Amundi, also target the massive Chinese fund market, which is widely considered the most critical growth market. However, Vanguard, the world’s second-largest asset manager after BlackRock, reportedly plans to close its Shanghai office and exit the Chinese market due to local competition and rising geopolitical tensions.

The deteriorating U.S.-China relationship, which began with trade tariffs imposed on China by former President Donald Trump and was exacerbated by the coronavirus pandemic, has led to a less predictable, reliable, and efficient business environment in China, as confirmed by both the European Chamber of Commerce in China and AmCham.

Shifting public opinion in Europe regarding China, for instance, due to the forced employment of Uighurs, is compelling European companies to more frequently weigh whether potential reputational damage in their home market still outweighs doing business in China.

AmCham’s survey shows that most companies maintain a presence in China, but 12% say they are moving their supply chains to other countries, and another 12% are considering doing so. De-risking is becoming increasingly important for foreign companies in China. For example, Apple announced it would source chips from supplier TSMC from a newly built facility in the U.S. state of Arizona and, like Samsung, assemble some tablets and smartphones in Vietnam and India. This movement of production to friendly countries is called friendshoring.

Companies have learned from the Russian example how difficult it can be to withdraw from a market. There is concern that China could employ a similar strategy if companies decide to leave, taking over their interests at a low cost. Therefore, many companies proceed cautiously when reconsidering their presence in China.

Elisabeth Braw of the think tank American Enterprise Institute argues that companies had better not close the gates behind them too radically in China. “Beijing could do a Moscow job. The losses would be too great. So you start with small steps.” This knowledge means companies better adjust their strategies and supply chains to mitigate risks.

Friendshoring and de-risking will likely receive increasing attention in the coming years as tensions between China and the U.S. continue to escalate. Companies will be forced to balance the significant business opportunities presented by China with the potential geopolitical and reputational risks associated with them.

In this complex landscape, companies will need to develop creative solutions and strategies to remain competitive while minimizing their exposure to risk. In addition to friendshoring and de-risking, companies may consider investing more in technologies that reduce reliance on particular geographic locations, such as automation and digital transformation.

Moreover, companies will need to maintain good relations with both the Chinese and U.S. governments to ensure they continue to have access to both markets. This may require companies to increase diplomatic efforts and adjust their business models to meet both countries’ changing demands and expectations.

The rising tensions between China and the U.S. undoubtedly present challenges for international companies. However, they also present opportunities for companies to become more resilient and agile in a rapidly changing world. By being proactive and forward-thinking, companies can anticipate potential changes in the geopolitical landscape and adjust their strategies accordingly. Ultimately, the future of China-U.S. trade relations will largely depend on the willingness of both countries to cooperate and compromise. While current tensions are cause for concern, it is important to remember that the global economy is highly dependent on cooperation between these two superpowers.