Trade takes a back seat to national security in Beijing and Washington

Leave a comment

National security fears in both Washington and Beijing threaten eclipsed prospects for greater commercial cooperation between the United States and China, with corporate executives worried about casualties in a major power clash.

After four decades of forging a fruitful partnership, both countries are now emphasizing greater self-reliance. Supply chain snarls during the pandemic have prompted some companies to back up their Chinese factories with plants in countries such as Vietnam, while rising geopolitical tensions have highlighted the risks of doing business with a strategic adversary for both sides.

In Beijing this month, Chinese President Xi Jinping opened the landmark Communist Party Congress with a speech emphasizing security and Marxist ideology. China’s leader broke precedent by securing a third term as party general secretary and promoted hardliners to top jobs in place of economic reformers.

The moves come two weeks after Biden effectively blocked the sale of advanced US computer chips and chip-making technology to China. More than a year in the works, the new export controls reflect the president’s determination to restrict Beijing’s development of sophisticated technologies that could be used to upgrade its military or monitor its own citizens.

The pivot from trade began four years ago under former President Donald Trump, who imposed heavy import tariffs on goods from China and barred Chinese technology companies from buying some critical US components. But this month’s Communist Party conclave and Biden’s tough export limits marked a significant widening of the US-China divide.

“This is a complete shift. We have to realize that the old idea of ​​putting a premium on the economy – these days are gone,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China, who has lived in China for the past 32 years. “The agenda is self-reliance. We have entered a new era.”

The new US-China dynamic could be on display in a possible meeting between Biden and Xi at the Group of 20 summit in Bali, Indonesia, next month. The two men, who haven’t met in person since Biden entered the White House, have a lot to discuss, including their $655 billion business relationship and Taiwan, a self-governing island that Beijing claims as its own.

A Truss explosion represents a major change in the financial climate

Investors have noticed the new tense environment. After the party congress, Hong Kong’s Hang Seng index fell more than 8 percent this week.

Meanwhile, in the United States, the chairman and co-chairman of the Congressional-Executive Commission on China on Thursday called on top executives from Wall Street banks including Goldman Sachs, Morgan Stanley, Citigroup and JPMorgan Chase to withdraw from a planned demonstration on investment. Summit in Hong Kong next week.

Lire Aussi :  China sends students home, police patrol to curb protests

Sen. Jeff Merkley (Ore.) and Rep. Jim McGovern (Mass.), both Democrats, said U.S. officials should “reconsider” their decision to talk to Hong Kong Chief Executive John Lee. Previously for his role in anti-democratic repression there, he was otherwise “complicit” in human rights violations.

City chief executive Jane Fraser came out on Friday citing a positive coronavirus test. Goldman Sachs, JP Morgan and Morgan Stanley declined to comment.

A temporary cooling during the US-China trade war is a decisive break with the past. For decades, the United States and China have prioritized economic ties in their relationship, with some warning that the two countries are vulnerable to conflict. But now, even so Two-way trade volumes are running well above last year’s record pace, with the balance tipping decisively towards competition and contention.

“To a certain extent, everyone is willing to put aside security concerns and other concerns in pursuit of economic gain, and the idea that that’s good for both sides and that leads to better relations,” said Michael Shuman, a senior fellow at the Atlantic Council. in Beijing. “What’s happening in both Beijing and Washington is that there is now a willingness to sacrifice that economic advantage for security reasons.”

Xi’s strongman approach has been a drag on China’s economy, which grew at an annual rate of 3 percent in the first nine months of this year, down from 8 percent last year. His signature “zero Covid” policy has dampened consumer spending and industrial production with repeated lockdowns, which affected Apple suppliers in Zhengzhou this week.

According to a survey released Thursday by the American Chamber of Commerce in Shanghai, only 55 percent of American companies are optimistic about the five-year outlook in China, the lowest number ever and down 23 percentage points from last year. A third of companies that responded said they had redirected planned China investments to other markets, more than double the share that did in 2021.

Budweiser told investors this week that it is adjusting its spending in certain Chinese markets depending on Covid caseloads. Caterpillar said sales of its 10-ton excavators suffered from a slowdown in construction. And Boeing recently cut its forecast for China’s expected aircraft needs over the next two decades.

“Business volumes may say otherwise, but growing tensions in political relations have spilled over into a deteriorating business environment for many US companies,” said Myron Brilliant, executive vice president of the US Chamber of Commerce. “It’s more sand in the gears. It’s going to be tough. “

Exacerbating ties, the export controls rolled out this month by the White House are an even more powerful demonstration of the administration’s high-tech retention strategy. The Commerce Department’s rules are intended to freeze China’s chip-making capacity and block Beijing’s efforts to build sophisticated semiconductors to modernize its military.

Lire Aussi :  Midterm elections spur uncertainty in markets

Unlimited advanced chips and supercomputing capabilities can be used to build nuclear weapons, hypersonic missiles, autonomous systems, and mass surveillance systems. Analysts say some of the same technologies will have lucrative commercial applications.

On Thursday, Alan Estevez, Commerce’s undersecretary for industry and security, said the administration consulted with U.S. allies before announcing the move. The United States expects major trading partners to adopt similar measures soon, he said at the Center for a New American Security. He suggested that authorities are considering additional technology-focused controls on quantum computing, biotechnology and artificial intelligence.

“We don’t balance trade with national security,” Estevez said. “When I see an action that needs to be taken for national security, I have top-down coverage to take care of it, regardless of the impact.”

Expect more China-related tech crackdowns, US official says

But Estevez said the licensing requirements are not intended to hold back China’s economic development. Chinese customers “retain a robust capability to make the semiconductors that go into the airbags of cars, which I have no problem with,” he said.

This will probably reduce the economic impact. In 2015, the Chinese government set a goal of producing 70 percent of the nation’s semiconductors by 2025, up from 10 percent.

Its domestic output rose just 16 percent over the 10-year period, according to Andrew Collier, an economist with GlobalSource Partners in Hong Kong.

The Senate race in Ohio is ground zero for the promise of more manufacturing jobs

“Biden’s semiconductor sanctions strike at the heart of China’s global ambitions. Xi Jinping has staked his reputation on creating a high-tech economy, but without Western semiconductor equipment, he will have a tough time achieving this,” said Collier, author of “China’s Technology War.”

The administration’s insistence on a single-minded security rationale for export controls has done little to ease the concerns of trade leaders. Companies that make toys and clothing in China probably have less cause for concern, as other manufacturers worry that narrowly designed technology restrictions could be stretched.

Already, Google and Apple have shifted some production of their smartphones to Vietnam and India respectively. Many companies, in other industries, are setting up alternative production sites outside of China or making contingency plans to relocate operations.

“Look at consulting companies. Ten years ago, he said, ‘How do I get to China?’ ” said Patrick Chovanek, a financial advisor at Silvercrest Asset Management in New York. “Now, it’s all, ‘How do I limit my China exposure?’ “

Lire Aussi :  Inside a Chinese iPhone Plant, Foxconn Grapples With Covid Chaos

While the Chinese government may not immediately retaliate against US export controls, analysts warn that the technology fight could develop its own logic. Both countries worry that if trade blows continue, other businesses will be caught in the crossfire.

“Political and regulatory risk is certainly elevated,” said Craig Allen, president of the US-China Business Council. “If you’re the head of the company or the CEO, it’s very difficult to figure out where this is going and what your risks are.”

Still, China remains a lucrative market for major US companies such as General Motors, the owner of Kentucky Fried Chicken, Apple and Yum Brands. And some investors remain bullish.

“Despite some investors’ geopolitical concerns we see significant opportunities in China,” New York investment manager Richard Bernstein wrote in a client note this week.

Biden’s American bailout plan worsened inflation, but the economy did better

However, Xi is expected to ease trade ties with the United States. After the February 24 invasion of Ukraine, the Biden administration’s success in gaining the support of allies to impose punishing financial sanctions on Russia has Beijing worried it could face similar actions in any future conflict over Taiwan’s status this year.

The CCP Congress, held every five years, concluded on October 22, cementing Xi’s vision of a threatening international climate. Congress is “in a very dark international environment with the United States at its center,” said a senior administration official, speaking on condition of anonymity to discuss the sensitive issue.

Xi assembled a seven-member Politburo Standing Committee with loyalists and top representatives from the hard-line state security and public security ministries.

The party report uses the word “security” at least 80 times, including references to “self-sufficiency around food and energy and all these things that could be a problem if there was a war around Taiwan,” said David Shulman. Former US intelligence officer now with the Atlantic Council.

At the last party congress in 2017, Xi said “peace and development remain the call of the day” as he warned party faithful to prepare for “higher winds, stormy waters and dangerous typhoons” this year.

Diplomats from the two nations engage in fewer meetings than in past years, allowing for misinterpretation and misunderstanding. The isolation fostered by strict Covid quarantine protocols has eroded the routines of gathering top American and Chinese officials several times each year.

“This means diplomacy is more important than ever,” the official said. “And given Xi’s unchallenged power, the diplomacy that really matters now is diplomacy with him.”

Gene Whalen contributed to this report.


Leave a Reply

Your email address will not be published.

Related Articles

Back to top button