China and the U.S. may have temporarily averted the most drastic escalation yet in their ongoing trade war, but their broader dispute has already soured other aspects of a relationship that is trying to find its footing.
That’s the assessment of experts and business leaders convened at the Metro Atlanta Chamber for the Georgia State University Confucius Institute’s China Breakfast Briefing, some of whom described ways they’re making the uncertainty work for them.
After a dinner with Chinese President Xi Jinping during the G-20 summit in Buenos Aires Nov. 30, President Donald Trump agreed to delay for 90 days a hike of tariffs on $200 billion in Chinese goods to 25 percent from the current 10.
While Mr. Trump tweeted that China had agreed to eliminate its 40 percent tariff on cars and buy more U.S. farm products, China hasn’t confirmed this, and administration officials have been attempting to walk back the assertion.
Either way, starting Dec. 1 both sides have three months to work out some kind of concrete deal to address U.S. concerns over Chinese intellectual property theft, forced technology transfer, overcapacity, market access and other issues.
Calls for China to reform have come amid an erosion of personal freedoms at home and a more aggressive stance on the global stage. U.S. suspicions about Chinese intentions are running high, and more than 360,000 Chinese students in the U.S. are starting to receive increased scrutiny — damaging the “export” prospects of universities who charge out-of-state tuition to foreigners, according to some at the event.
Talks on previous common-ground issues like climate change, global health and combating extremism have all but halted, says Yawei Liu, director of the China Program at The Carter Center.
The question with China having arrived is whether the two powers can come to a “coexistence of two exceptionalisms,” said Dr. Liu, alluding to ideas from former U.S. Secretary of State Henry Kissinger.
Dr. Liu said China will have to undertake the reforms in a way that doesn’t diminish the strength of the Communist Party.
“To do all these things is in the greater interest of China. I don’t think they will happen over night, but they will happen,” said Dr. Liu, who led off the panel by setting the context of the broader relationship.
Companies, meanwhile, are trying to make sense of policies and tariff measures that seem to change by the day.
Scott Ellyson, CEO and founder of contract manufacturer East West Manufacturing, works with some 200 factories in China, including a motor factory in which it has an ownership stake. Now he’s sourcing products from elsewhere in Asia where he can and buying factories in the U.S. and Central America to improve supply chains. But that was already part of the plan; tariffs are too big of a wildcard to count on for the longer term.
“Nobody is going to invest $100 million to build infrastructure around a tariff that may not be around tomorrow,” Mr. Ellyson said. “Capital is not being deployed to mitigate the tariffs; it’s being used in places that already have the infrastructure.”
He said tariffs make U.S. companies less competitive by raising the costs of their inputs, a fact that Trump administration may not have accounted for.
“I’ve been negotiating in China for a very long time, and I can tell you that this is not how I would go about it,” said Mr. Ellyson, who still sees tariffs as a net advantage for his company in that customers are looking to East West for more guidance as they diversity away from China.
Similarly, Bianca Hollander, trade lane development manager for M+R Spedag Group, says shippers are starting to be less price sensitive as they seek to get their orders delivered before tariffs kick into gear. That’s a good thing for her Swiss-based logistics firm, but in the long run it’s harder to forecast demand. Creative routings have made some shipments more vulnerable to inspection.
“A lot of years in shipping are crazy; this one has been particularly crazy,” she said.
Meanwhile, Georgia is seeing record interest from Chinese firms looking to invest in the U.S. to retain market share in the event of crippling tariffs, said Stella Xu, director of China initiatives for the Georgia Department of Economic Development.
The state has hosted delegations led by the governors of Shaanxi and Hunan provinces this year and now answers about three Chinese investor inquiries per week, compared to one per month last year.
“Most of them are already doing business in the United States, and so they cannot afford to give up this market they have been managing and cultivating and selling in for many, many years,” she said.
In Georgia farm country, the outlook on the China relationship isn’t so rosy, says Tom Cunningham, chief economist at the chamber and the panel’s moderator. Before being pummeled by Hurricane Michael, pecan growers were already reeling from China’s retaliatory tariffs, presumably as part of a “strategic targeting” campaign to hit areas that supported President Trump politically.
Which country can outlast the other is an open question: China’s one-party system does not face the same political pressure, but its economy is more fragile to shocks, and some urban dwellers and Chinese scholars welcome pressure from the U.S., thinking it’s the only avenue to drive reform, Dr. Liu said.
“Early on, people were talking about epic tariffs with the U.S., and some were saying, we can tolerate another round of starvation if we are going to fight this battle. I don’t think the Chinese people are ready to starve.”