Supporters of Trump’s trade war often overlook the damage being done to U. S. companies in China,
Mao Zedong on Chinese 100 yuan note.
Less than a year into President Donald Trump’s trade war with China, American businesses are feeling the pinch after his decision to levy tariffs on $250 billion worth of Chinese goods and his threat to tax another $267 billion, which would in total exceed the value of all Chinese goods exported to the U. S. last year. China in turn slapped tariffs on $60 billion worth of U. S. goods in August, bringing the total on its side to $110 billion. “T rade wars are good, and easy to win,” Trump said in March, but neither remark has proven true, and m eanwhile U. S. companies on the front lines in China are taking heavy fire.
“It’s total chaos,” Chris Rupkey, chief financial economist at MUFG Union Bank, recently told the Los Angeles Times . “All you have to do is look at the earnings calls that many of these companies have given already.” Indeed, a lmost 40% of all S&P 500 companies reporting third-quarter earnings so far have discussed the fallout of tariffs on their conference calls with analysts, CNBC reported on October 24, though not all these are related to China. But as the U. S.’s largest trading partner, China definitely packs the biggest punch.
It also knows where to aim, as China is keenly aware that U. S. companies are exposed. Yi Gang, governor of the People’s Bank of China (PBOC), recently said focusing on China’s declining current account balance surplus (meaning it’s exporting less than it imports) ignores factors such as the existence of U. S. subsidiary companies producing and selling in China. Just look at this analysis by MarketWatch, which lists the 20 U. S. companies among the S&P 500 with the highest level of sales in China. As the article says, “in a potential trade war with China there would be nowhere to hide even if you were invested in a broad index fund.”
Moreover, the blow to U. S. companies has already been “clear and far reaching,” according to a joint survey by the American Chamber of Commerce in China (AmCham Beijing) and AmCham Shanghai, with over 60% of companies surveyed saying the tariffs have harmed their operations. The report quotes AmCham Shanghai Chairman Eric Zheng as saying:
If almost a half of American companies anticipate a strong negative impact from the next round of U. S. tariffs, then the U. S. administration will be hurting the very companies it should be helping. We support President Trump’s efforts to reset U. S.-China trade relations, address long-standing inequities and level the playing field. But we can do so through means other than blanket tariffs.”
Probably the biggest thing we can do to help U. S. companies, Michael Schuman writes for Bloomberg, is stop obsessing over the trade deficit, which ignores the money being made by U. S. companies that produce goods and services in China for the Chinese market. Instead, we should work to help them succeed where they already are — in China’s booming economy. “Trump would be better served directly pressing Beijing to lift barriers to U. S. business,” Schuman says, “rather than restricting trade and imposing higher costs on U. S. companies and consumers. It’s profits that matter, not deficits.”
Trump’s goal of correcting the trade deficit, such that the value of all imports from China more closely matches the value of all exports to China, ignores the fact that booming economies make more, spend more and import more. When working with an economy as large and dominant as that of the U. S., whose dollar is the world’s reserve currency, the old thinking about trade deficits doesn’t really apply. In fact, it never has.
I am an editor at the financial news service Brightwire, where I work on issues related to cybersecurity, energy, industrial innovation and trade. My writing has appeared in The Wall Street Journal, CNN, The New Republic, Bloomberg, Slate and Vice. I am also the former natio…
