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


Concerns about national security in Washington and Beijing threaten to overshadow the prospect of increased business cooperation between the United States and China, leaving business executives worried about falling prey to a great-power conflict.

After four decades of lucrative partnership, both countries are now emphasizing a greater degree of self-sufficiency. Supply chain disruption during the pandemic has prompted some companies to set up factories in countries such as Vietnam to support their Chinese factories, while rising geopolitical tensions have highlighted the risks involved in trade with strategic rivals.

Chinese President Xi Jinping in Beijing this month The landmark Communist Party Congress kicked off with speeches emphasizing security and Marxist ideology. The Chinese leader broke with precedent, securing a third term as party general secretary and elevating a hardline advocate to the top job to replace the economic reformer.

Two weeks ago, Biden effectively banned the sale of the most advanced U.S. computer chips and chip-making technology to China. After more than a year of work, the new export controls reflect the president’s determination to limit Beijing’s development of cutting-edge technology that could be used to upgrade its military or spy on its own citizens.

The business-as-usual shift began more than four years ago under former President Donald Trump, who imposed hefty import tariffs on goods from China and restricted Chinese tech companies from buying some key U.S. components. But this month’s secret Communist Party meeting and Biden’s strict export curbs marked a marked widening of the U.S.-China divide.

“It’s a complete shift. We just need to realize that the old idea of ​​valuing the economy – those days are gone,” said Jorg Wutke, president of the European Union Chamber of Commerce in China, who has lived in China for 32 years. (Joerg Wuttke) said. “The agenda is self-reliance. We have entered a new era.”

New U.S.-China dynamics could be showcased next month when Biden and Xi meet at the G20 summit in Bali, Indonesia. The two, who have not met in person since Biden took office, have plenty to discuss, including their $655 billion trade relationship and the self-governing island of Taiwan claimed by Beijing.

Truss implosion shows dramatic change in financial environment

Investors have taken note of the fresh air of tension. Hong Kong’s Hang Seng Index fell more than 8 percent this week after the party congress.

Meanwhile, in the U.S., the Congressional-Executive Committee chairman and co-chair on Thursday called on executives from Wall Street banks including Goldman Sachs, Morgan Stanley, Citigroup and JPMorgan Chase & Co. to withdraw from a planned investment campaign. The summit is in Hong Kong next week.

Also Read :  Russia Moves to Pull Out of Ukraine Grain Deal After Blasts Hit Crimean Port

Democrats Sen. Jeff Merkley (Oregon) and Rep. Jim McGovern (Massachusetts) said U.S. executives should “reconsider” their decision to speak with Hong Kong Chief Executive John Lee, who has been sanctioned by the U.S. for two years before him. played a role in the anti-democratic crackdown there, adding that otherwise they would be “complicit” in human rights abuses.

Citi CEO Jane Fraser quit on Friday, citing a positive coronavirus test. Goldman Sachs, JPMorgan and Morgan Stanley declined to comment.

The seemingly temporary chill during the U.S.-China trade war has become a clear break with the past. For decades, the United States and China have prioritized economic ties in their relationship, despite warnings that the two countries are destined for conflict.But now, even if Two-way trade volumes are higher than last year’s record levels, and the balance has clearly tipped toward competition and scramble.

“At some point, everyone is willing to put aside security concerns and other concerns and pursue mutually beneficial economic interests, thinking that will lead to a better relationship,” said Michael Schuman, a senior fellow at the Atlantic Council. in Beijing. “What’s happening in Beijing and Washington is that both are now willing to sacrifice some of their economic interests for security reasons.”

Xi’s strongman approach has dragged down China’s economy, which grew at an annual rate of 3 percent in the first nine months of this year, down from more than 8 percent last year. Repeated lockdowns under his signature “zero outbreak” policy have dampened consumer spending and industrial production, including this week that affected an Apple supplier in Zhengzhou.

Only 55 percent of U.S. companies said they were optimistic about China’s five-year outlook, a survey released Thursday by the American Chamber of Commerce in Shanghai showed, the lowest number ever and a 23-point drop from last year. A third of responding companies said they had redirected their planned Chinese investments to other markets, nearly double the proportion in 2021.

Budweiser told investors this week that it was adjusting its spending in select Chinese markets, depending on the number of Covid-19 cases. Caterpillar said sales of its 10-ton excavators were being hurt by a slowdown in construction. Boeing recently downgraded its forecast for China’s expected aircraft demand over the next two decades.

“Trade volumes could be reversed, but growing political tensions have spilled over into a deteriorating business environment for many U.S. companies,” said Myron Brilliant, executive vice president of the U.S. Chamber of Commerce. “There’s more sand in the gears. It’s going to get harder.”

To make matters worse, the export controls introduced by the White House this month are the strongest demonstration yet of the administration’s evolving high-tech containment strategy. The Commerce Department’s rules are designed to freeze China’s chip-making capabilities and thwart Beijing’s efforts to make cutting-edge semiconductors to modernize its military.

Also Read :  Business News: ND jobs…recalls & gambling

Advanced chips and supercomputing power would be banned from making nuclear weapons, hypersonic missiles, autonomous systems and mass surveillance systems. Analysts say some of these same technologies will also have lucrative commercial applications.

On Thursday, Alan Estevez, the undersecretary of commerce for industry and security, said the administration had consulted with U.S. allies before announcing the move. The U.S. expects major trading partners to take similar steps soon, he said at the Center for a New American Security. He also suggested that officials are considering additional tech-centric controls over quantum computing, biotechnology and artificial intelligence.

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

More China-related tech crackdowns expected, U.S. officials say

But Estevez said the licensing requirements were not meant to hinder China’s economic development. Chinese customers will retain “a strong ability to make semiconductors for automotive airbags, and I have no problem with that,” he said.

This may underestimate the economic impact. In 2015, the Chinese government set a goal of producing 70% of the country’s semiconductors by 2025, up from 10%.

Halfway through the decade, its domestic production rose to just 16 percent, said Andrew Collier, an economist at Global Sources in Hong Kong.

Ohio Senate race zeros in on hopes of more manufacturing jobs

“Biden’s semiconductor sanctions will push the core of China’s global ambitions. Xi Jinping has staked his reputation on building a high-tech economy, but without Western semiconductor equipment he will have a hard time achieving it,” China’s Tech Collier, author of The War, said.

The government’s insistence on a single security reason for export controls did not assuage business leaders’ concerns. While companies that make toys and clothing in China may have little reason to worry, other manufacturers worry that tailor-made technological restrictions could widen.

Google and Apple have moved some smartphone production to Vietnam and India, respectively. Many companies in other industries are setting up alternative production bases outside China or drafting contingency plans to relocate operations.

“Look at the consulting firms. Ten years ago, they were all saying, ‘How do I get into China? “” said Patrick Chovanec, an economic adviser at Silvercrest Asset Management in New York. “Right now, it’s all, ‘How do I limit my exposure in China?'”

Also Read :  America First Multifamily Q3: Demolishes Mortgage REITs And Muni Bond Funds (ATAX)

While the Chinese government may not immediately retaliate against U.S. export controls, analysts have warned that the technology fight could develop its own logic. If the two countries continue to fight each other, other businesses fear they will be caught in the crossfire.

“Political and regulatory risks are definitely rising,” said Craig Allen, chairman of the U.S.-China Business Council. “If you’re the head of the company or the CEO, it’s hard to work out where this is going and what your risks are.”

Still, China remains a lucrative market for flagship U.S. companies such as General Motors, Apple and KFC-owned Yum! Some investors remain bullish.

“Despite the geopolitical concerns of some investors, we see a huge opportunity in China,” Richard Bernstein, a New York-based investment manager, wrote in a client note this week.

Biden’s U.S. rescue package worsens inflation but improves economy

However, Xi is expected to cut back on business ties with the United States. After Russia invaded Ukraine on Feb. 24, the Biden administration successfully secured the support of allies this year to punish financial sanctions on Russia, raising Beijing’s fears of being hit by similar measures in any future conflict over Taiwan’s status.

The five-yearly Communist Party Congress, which closes on October 22, cemented Xi Jinping’s vision of threatening the international climate. Discussing sensitive issues, a senior administration official, speaking on condition of anonymity, said the assembly expected a “very dark international environment with the United States at its core.”

Xi has stacked the seven-member Politburo Standing Committee with advocates and senior representatives of hardline national security and public security ministries.

The party report used the word “security” at least 80 times, including references to “all of these things that revolve around food and energy self-sufficiency and what could become a problem if there was a war in Taiwan,” said David Shulman, a former U.S. intelligence official , currently serving on the Atlantic Council.

Speaking at the last party congress in 2017, Xi said “peace and development are still the call of our times”, and this year he warned party loyalists to prepare for “strong winds, rough seas, and even dangerous storms.”

Diplomats from both countries have attended far fewer meetings than in past years, leaving room for misunderstandings and misunderstandings. Quarantines caused by strict coronavirus quarantine protocols have eroded the routines that bring senior U.S. and Chinese officials together countless times a year.

“It also means diplomacy may be more important than ever,” the official said. “Given Xi’s undisputed power, the only diplomacy that really matters right now is with him.”

Jeanne Whalen contributed to this report.


Leave a Reply

Your email address will not be published.

Related Articles

Back to top button