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Trade Dispute Worries US Companies in China

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As the Trump administration wages an economic battle with China in the form of reciprocating tariffs and other economic measures, it may not be a great time to be an American company operating in China. The US-China Business Council (USCBC), an organization made up of 200 U.

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S. companies that do business with China, released its annual member survey, finding the trade dispute—and the ongoing political tensions underlying it—are a huge concern for these companies and may be adding to worries about doing business in China.

Since the Trump administration declared a tariff on billions of dollars of Chinese exports in June 2018, the United States and China have traded retaliatory economic measures.

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Negotiators from the countries are preparing to meet in October, hoping to break a deadlock, even as each side moves to put pressure on the other’s economy.

Last month, President Trump announced increased tariff rates on Chinese imports, and tweeted that American companies were “hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.” Some U.S. business groups condemned the moves and the president’s rhetoric, including the National Retail Federation. “It’s impossible for businesses to plan for the future in this type of environment,” said David French, the federation’s senior vice president of government affairs. These moves are an outgrowth of continued tensions, both economic and political, between the two countries.

It is no wonder then, that between 2018 and 2019, the percentage of USCBC members who said that their company’s business had been affected by US-China “trade tensions” increased from 73% to 81%. Of the reasons companies reduced or stopped planning investment in China in the past year, 60% of respondents cited “increased costs of uncertainties from US-China tensions.”

Among the real-world results of the trade dispute, USCBC members reported that the biggest impact was “lost sales due to tariffs implemented by China” (49%) and “shifts in suppliers or sourcing due to uncertainty of continued supply” (43%). The majority of the other concerns have to do with uncertainty or stigma attached to U.S. companies in China. Additionally, 26% of respondents projected that their current year revenue from China would decrease, compared to 9% in 2018.

The USCBC reported that “respondent optimism about China market prospects five years from now is at a historic low,” with the country’s stringent regulatory environment posing the largest driver of long-term doubt for U.S. companies. Indeed, the survey showed that, for 2019, 14% had a pessimistic or somewhat pessimistic five-year outlook, while 21% were neutral, an increase of 5% for both since 2018. However, the trade disputes are a major driver of short-term pessimism.

Also, when asked about cyber-related issues with doing business in China, 64% of respondents reported that “U.S.-China political tensions” were their biggest worry. And with good cause: According to cybersecurity firm Crowdstrike’s 2019 Global Threat Report, in the past year, the firm “observed an increasing operational tempo from China-based adversaries, which is only likely to accelerate as Sino-U.S. relations continue to worsen.”

And the impact reaches far broader than just companies that do business in China, like the members of the USCBC. As reported in the Risk Management article “The Business Impact of Trump Tariffs,” because many companies have complex, interconnected international supply chains, the trade dispute has a much broader effect on a wider array of businesses and industries. For example, a tariff on Chinese solar panels does not just hurt Chinese solar panel companies, it hurts U.S. manufacturers that supply parts for those panels, and U.S. companies that rely on components from Chinese manufacturers are affected as well.

Examining U.S. Immigration’s Economic Impact

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In last night’s third and final presidential debate of the 2016 election cycle, immigration again emerged as a defining topic in discussion of both regulatory reform and the economy. With an increasing amount of immigration by highly skilled laborers—and, of course, the potential reputation impact on companies seen as giving more jobs to non-citizens or moving out of the country in pursuit of labor—changes in such policy have clear implications for risk professionals.

Last month, the National Academies of Sciences, Engineering and Medicine released one of the most comprehensive studies to date on the economic impact of immigration in the United States. Overall, the researchers found that immigration over the past couple of decades has done more good than harm, creating positive impacts on the national economy and causing little lasting impact on the wages or employment levels of native-born Americans. “Immigration enlarges the economy while leaving the native population slightly better off on average,” the study said, also pointing out increases in innovation, entrepreneurship and technological change across the economy. “The prospects for long run economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants,” the researchers reported.

Some of the study’s key findings and conclusions include:

  • When measured over a period of 10 years or more, the impact of immigration on the wages of native-born workers overall is very small. To the extent that negative impacts occur, they are most likely to be found for prior immigrants or native-born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills.
  • There is little evidence that immigration significantly affects the overall employment levels of native-born workers. As with wage impacts, there is some evidence that recent immigrants reduce the employment rate of prior immigrants. In addition, recent research finds that immigration reduces the number of hours worked by native teens (but not their employment levels).
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  • Some evidence on inflow of skilled immigrants suggests that there may be positive wage effects for some subgroups of native-born workers, and other benefits to the economy more broadly.
  • Immigration has an overall positive impact on long-run economic growth in the U.S.
  • In terms of fiscal impacts, first-generation immigrants are more costly to governments, mainly at the state and local levels, than are the native-born, in large part due to the costs of educating their children. However, as adults, the children of immigrants (the second generation) are among the strongest economic and fiscal contributors in the U.S. population, contributing more in taxes than either their parents or the rest of the native-born population.
  • Over the long term, the impacts of immigrants on government budgets are generally positive at the federal level but remain negative at the state and local level — but these generalizations are subject to a number of important assumptions. Immigration’s fiscal effects vary tremendously across states.
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“The panel’s comprehensive examination revealed many important benefits of immigration—including on economic growth, innovation, and entrepreneurship—with little to no negative effects on the overall wages or employment of native-born workers in the long term,” said Francine D. Blau, Frances Perkins Professor of Industrial and Labor Relations and professor of economics at Cornell University, and chair of the panel that conducted the study and wrote the report.

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“Where negative wage impacts have been detected, native-born high school dropouts and prior immigrants are most likely to be affected.”

Check out the April cover story from Risk Management, “Welcome to America: Why Immigration Matters for Business,” for more on the risk management implications of immigration into the United States.