Clay Chandler Feb 06, 2017
In first two weeks as president, Donald Trump locked horns with so many U.S. trade partners—denouncing Japan’s biggest car maker for building factories in Mexico, hectoring Mexico’s president for failing to stand up to “bad hombres,” browbeating Australian prime minister and allowing his top trade advisor to slam Germany as a currency manipulator—that pundits the world over are calling him a “bull in the china shop.” But the cliché is inapt. So far, the one country President Trump has avoided charging at is China.
Such forbearance, whether by accident or design, seems unlikely to last. Trump’s screeds against China—for cheapening its currency, stoking its export machine and “stealing” American jobs—were a centerpiece of his campaign. And yet, as Trump himself probably knows, China won’t be easy to bully.
That is so partly because China is a strategic rival, not an ally, and thus less willing forgive a rude phone call or testy Tweet, and because China’s leaders, like Trump himself, are unpredictable, thin-skinned and obsessed with matters of “face.” But the real difficulty in taking on China lies in the fact that China’s economic relationship with the U.S. is at once more important and more complicated than that of any other nation.
It’s hard to overstate how tangled the U.S.–China partnership has become. Historian Niall Ferguson has famously suggested the two countries are so inter-dependent that they should be thought of as a single creature; he calls it “Chimerica.” China owns $1.1 trillion of U.S. government debt, ranking just behind Japan as America’s largest foreign creditor. China is America’s largest trading partner, with annual trade in goods and services worth $663 billion, and its third-largest export market. By one estimate, if sales by U.S. foreign affiliates in China and re-exports of U.S. products through Hong Kong to China are factored in, U.S. exports to China total $400 billion. Last year General Motors sold 3.9 million vehicles in China, more than 25% more than it sold in the U.S. China now has more than 130 million iPhone users, making it larger market for Apple than the United States.
The U.S. far outweighs China in military firepower and economic output, of course. But trade wars, once begun, aren’t easily controlled and if the world’s two largest economies get into a mutually destructive economic confrontation, the real question won’t be who has the biggest GDP, but which country has the highest threshold for pain. In theory, Trump could slap high taxes on Chinese imports. Beijing’s countermoves could include shutting out Boeing, which is hoping to claim at least half of China’s estimated $1 trillion market for airplanes over the next 20 years. China could put the squeeze on host of other U.S. companies including Ford, Qualcomm, Walmart, Starbucks. The risk for Trump is that, with China, his get-tough approach could start to look less like The Art of the Deal and more like “The Art of the Squeal.”
As we wait for Trump’s China policy to take shape, you can get a good idea of the complexities of the U.S.–China economic relationship by reading this fascinating article by veteran China correspondent Brook Larmar, who takes a detailed look at what may be China’s most important U.S. export: students. Chinese students now account for about 300,000 of the roughly 1 million foreign students enrolled in American colleges, making them by far the biggest foreign group. Brook’s latest piece tries to understand why the number of Chinese high school students, part of what some call the “parachute generation,” has also grown so rapidly. Interdependence is one of the article’s main themes. The Chinese students benefit from coming to America, learning English and preparing for U.S. universities. But the communities into which these kids parachute benefit too, from Chinese money that funds schools and has many trickle-down benefits.
But Brook captures the many human dynamics of the surge: the yearning of Chinese students to escape the rigors of their own brutal examination system; the Chinese brokers who exploit the desires of their countrymen for hefty profit; and the sense of alienation students feel after coming to America. The piece notes that ultimately, rather than gaining a new understanding and appreciation for the United States, many students who come to America to study return with a new wariness of America, and stronger sense of identity as Chinese. It’s a classic study in the paradox in globalization, and how sweeping forces that should be bring us countries and cultures together often wind up just pushing us all apart.
Source: Fortune “It Won’t Be Easy for Donald Trump to Bully China”
Note: This is Fortune’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.
According to Reuters’ report McDonald’s has sold most of its business in China to CITIC, Carlyle for $2.1 billion” on January 9, it did so in order to expand instead of leaves China. By the sale, it draws in Chinese giant CITIC to set up 1,500 more restaurants in China in five years in addition to its existing 2,400 in China.
The new restaurants will create lots of jobs in China. Will that upset US new president Donald Trump? Perhaps! Better shifting the blame on CITIC a Chinese firm that now holds majority interest of McDonald’s in China.
Moreover, even if Trump will not punish McDonald, McDonald still may be in serious trouble as a trade war is looming between the US and China. Making things difficult for US business interests in China is China’s powerful weapon of retaliation at US attacks such as tariff increase and restriction of Chinese investment in the US.
The sale has turned McDonald’s’ interest in China into a Chinese one to ensure it will not be in any trouble in the trade war.
McDonald’s does have vision.
Reuters says in its another report titled “U.S. companies have new business risk – being labeled ‘anti-American’ by Trump” on January 10, “Some U.S. companies are reviewing potential mergers while others are rethinking job cuts or looking at their manufacturing operations in China for fear of being cast as “anti-American” by President-elect Donald Trump, according to Wall Street bankers, company executives and crisis management consultants.”
McDonald’s has set a wise example for the US companies that have interests in China to avoid trouble.
Comments by Chan Kai Yee on Reuters’ report, full text of which is reblogged below:
McDonald’s sells most of China, HK business to CITIC, Carlyle for $2.1 billion
By Elzio Barreto | HONG KONG Mon Jan 9, 2017 | 11:44am EST
McDonald’s Corp (MCD.N) has agreed to sell the bulk of its China and Hong Kong business to state-backed conglomerate CITIC Ltd (0267.HK) and Carlyle Group LP (CG.O) for up to $2.1 billion, seeking to expand rapidly without using much of its own capital.
The 20-year deal caps months of negotiations between the fast-food chain, private equity firms including Carlyle and TPG Capital Management LP [TPG.UL] as well as several Chinese suitors.
The U.S. fast food chain said local partners will help speed up growth in the world’s No. 2 economy through new restaurant openings, particularly in smaller cities that are expected to benefit from increased urbanization and income growth.
“McDonald’s globally overall is struggling and didn’t have the money or intellectual resources to focus on China,” said Shaun Rein, managing director at China Market Research Group.
The company has more than 2,400 restaurants in mainland China and roughly 240 in Hong Kong. The new partnership plans to add 1,500 in the two areas over the next five years.
Under the deal, Hong Kong-listed CITIC Ltd will own about 32 percent of the business, with CITIC Capital, an affiliate company that manages private equity funds and other alternative assets, holding another 20 percent.
Carlyle will control 28 percent of the business, while McDonald’s will retain a 20 percent stake, the companies said in a statement. The deal will be settled in cash and in shares in the new company that will act as the master franchisee for the 20-year period.
McDonald’s originally wanted to raise up to $3 billion from the sale of the business, but later decided to keep a minority stake to benefit from exposure to future growth in China, a person with direct knowledge of the plans previously told Reuters.
The partnership will also aim to boost sales at existing restaurants, with menu innovation a key focus. Fast-food firms including McDonald’s and Yum Brands Inc (YUM.N) are recovering from a series of food-supply scandals in China that have undermined their performance.
“I’m not sure how much more you can do with McDonald’s in China. They’re a well-run company, so I’m not sure that CITIC and Carlyle are able to add that much more aside from capital,” Rein said.
McDonald’s said in March it was reorganizing operations in the region, looking for strategic partners in China, Hong Kong and South Korea. The company later decided to keep its South Korea business.
Other companies that had bid for the China and Hong Kong assets included TPG, which teamed up with mini-market operator Wumart Stores Inc, and real estate firm Sanpower Group Co Ltd [SPGCL.UL], which owns British department store House of Fraser Ltd [HFPLC.UL], sources have said.
JPMorgan Securities is advising the buyer group, while CITIC Ltd also said it hired CITIC CLSA Capital Markets as its financial adviser and CITIC Securities as financial adviser in China. McDonald’s hired Morgan Stanley (MS.N) to run the sale.
(Reporting by Elzio Barreto; Additional reporting by Jessica Yu and Donny Kwok in Hong Kong and Rushil Dutta in Bengaluru; Editing by Edwina Gibbs)
Reuters describes in its report today US business’ worry about Trump’s policy of bringing jobs back from abroad that may give rise to a trade war that hurt US business’ interests abroad, especially in China.
It gives its report on the worry the sensational title of “U.S. companies have new business risk – being labeled ‘anti-American’ by Trump”.
The report begins with the description: “Some U.S. companies are reviewing potential mergers while others are rethinking job cuts or looking at their manufacturing operations in China for fear of being cast as ‘anti-American’ by President-elect Donald Trump, according to Wall Street bankers, company executives and crisis management consultants.”
It seems to me Trump will hurt US rich people’s interests to benefit poor unemployed people. Something similar to what communists in China did before the reform and opening up but failed. Depriving rich people of their wealth only lead to common poverty.
However, I believe US people choose Trump due to his wisdom instead of his stupidity. Trump must certainly be aware that America needs wealth to prosper. The US will certainly be benefited by the lot of money its firms make abroad. The problems is only Trump has to force them to bring home the wealth they have made instead of allowing them to keep their wealth away from the US with some tricks to evade tax, etc.
Comment by Chan Kai Yee on Reuters’ report, full text of which is reblogged below:
U.S. companies have new business risk – being labeled ‘anti-American’ by Trump
By Lauren Hirsch and Mike Stone | NEW YORK/WASHINGTON Tue Jan 10, 2017 | 3:10pm EST
Some U.S. companies are reviewing potential mergers while others are rethinking job cuts or looking at their manufacturing operations in China for fear of being cast as “anti-American” by President-elect Donald Trump, according to Wall Street bankers, company executives and crisis management consultants.
Having seen some of America’s largest companies, including General Motors Co (GM.N), Lockheed Martin Corp (LMT.N) and United Technologies Corp (UTX.N), bluntly and publicly rebuked by Trump on Twitter, many others are worried they may be his next target – especially if they have significant overseas manufacturing, have had U.S. job cuts or price increases for consumers.
“Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence is WRONG!” Trump, who assumes office on Jan. 20, tweeted in December.
Trump campaigned on an “America First” anti-globalization platform that promised the return of thousands of U.S. manufacturing jobs to economically depressed areas.
That nationalist rhetoric and Trump’s willingness to use his Twitter account as a cudgel has so rattled some companies that they are putting on hold mergers and acquisitions that may involve significant job cuts or moving production or tax domicile abroad, out of fear that such deals could be seen as “unpatriotic”, several top Wall Street bankers said.
Bermuda-based White Mountains Insurance Group Ltd (WTM.N) had been in talks to sell itself in a transaction that would have been structured as an inversion – where a U.S.-based buyer would move its tax domicile overseas.
However, the deal fell apart after the November election partly because potential buyers worried that leaving the U.S. tax home would be seen as “anti-American,” three people with knowledge of the matter said. Potential buyers also found the target less attractive because of the likelihood of lower U.S. corporate taxes under the Trump administration, the people said.
Representatives of the $3.8 billion company declined to comment.
At least two other insurance deals have also fallen apart since the election for similar reasons, said the people, who declined to elaborate and asked not to be named because the matter is not public.
Trump’s aggressive anti-China rhetoric has also given some companies pause.
James Park, chief executive of wearable fitness device maker Fitbit Inc FIT.O, said he expects all companies that have significant manufacturing operations in China, including his own firm, to prepare contingency plans.
Trump has threatened to hit China and Mexico with high tariffs and named vocal China critic Peter Navarro to lead a new White House office overseeing U.S. trade policy.
“Whether it’s taking higher costs into account or operationally preparing for moving manufacturing (out of China), companies are thinking about what to do,” Park said in an interview.
WATCHING TRUMP’S TWEETS
Companies are also beefing up their Twitter monitoring for any Trump tweets that could affect them and engaging public relations firms for advice on potential lines of attack and how to respond if they were to come, several U.S. chief executives as well as half a dozen corporate advisers told Reuters.
“Back in December the board was already asking questions: ‘What’s the plan in terms of what happens if he comes after us, are we ready? The board is asking us if we have a PR firm at the ready, if we have a person monitoring his Twitter,” said a top executive at a large U.S. defense contractor.
“Our plan is to not get into a fight, and concede immediately. The reality is that we’re trying to stay below the radar,” the executive said, asking not to be named because of the sensitivity of the issue.
Since his election in November, Trump has ramped up criticism of companies from Ford Motor Co (F.N), Toyota Motor Corp (7203.T) and GM, to United Tech and Rexnord Corp (RXN.N) over manufacturing in Mexico for U.S. consumers or moving U.S. jobs abroad.
Trump also slammed Lockheed Martin and Boeing Co (BA.N) for what he called “out of control” costs on their weapons programs.
Both Lockheed and Boeing have said they will work to drive down costs of the programs, while Ford scrapped plans to build a $1.6 billion plant in Mexico, and United Tech’s Carrier unit is keeping half of the 2,100 U.S. jobs it was to shift to Mexico.
Government relations and public relations advisers say they have received a number of calls from companies wanting help in assessing if they have any red flags that could draw Trump’s ire.
Advisers say these potentially include outsourcing of manufacturing, consumer price increases and lower tax rates than peer companies.
“We have literally had about a dozen clients ask us how they should be thinking about this in the last few weeks,” said George Sard, chairman and CEO of strategic communications firm Sard Verbinnen & Co, adding that he is seeing concern from companies in a wide range of industries.
“The week after the election it was non-stop meetings and conference calls and analysis,” said Kent Jarrell, crisis and litigation communication expert at APCO Worldwide. “It’s almost like a whole new Trump practice is developing.”
Corporate leaders, say the advisers, can no longer focus only on maximizing shareholder value; they must now also weigh national interest.
“CEOs are talking to their boards saying we’ve got to be viewed pro-America. If something is more on the margin – like layoffs, or moving manufacturing, then they are not going to do it,” said one Fortune 500 CEO, who said he had spoken with other U.S. companies.
TAKING A PAGE FROM TRUMP PLAYBOOK
Sard, of Sard Verbinnen & Co, said that while companies are well advised not to get into a Twitter war with Trump, his firm is advising clients to “learn from his playbook” and be prepared to communicate directly with shareholders, employees, and customers through blogs and social media.
There is already evidence that companies are quickly adjusting to the new Trump era. Firms have been more vocal in publicizing job creation and they have sometimes let Trump claim credit.
Fiat Chrysler Automobiles (FCHA.MI) (FCAU.N), the No. 3 automaker in the United States, announced plans on Sunday to create 2,000 U.S. jobs. The timing was partly influenced by CEO Sergio Marchionne’s desire to get the news out ahead of any possible criticism from Trump for the automaker’s overseas manufacturing, a person familiar with the company’s thinking said.
Trump has in the past few weeks attacked FCA’s two Detroit rivals, as well as Japan-based Toyota, for their manufacturing operations in Mexico and threatened to impose stiff border taxes on any imports.
In December, SoftBank Group Corp (9984.T), majority owner of Sprint Corp (S.N), unveiled a $50 billion U.S. investment at the Trump Tower in Manhattan. Trump and SoftBank head Masayoshi Son made the announcement together, and Trump later tweeted: “He would never do this had we (Trump) not won the election!”
“You never want to be against the president – especially not one as vocal as (Trump),” the Fortune 500 CEO said.
Trump on Twitter: tmsnrt.rs/2jf8zG8
(Additional reporting by Olivia Oran in New York, Liana Baker in San Francisco and David Shepardson in Detroit, Editing by Soyoung Kim and Ross Colvin)
There will be quite a few advantages for Chinese President Xi Jinping’s Silk Road economic belt and 21-century maritime Silk Road (One Belt, One Road) initiative.
The most important is trade security by establishment of land trade route to Europe through Russia and Central Asia and safer maritime route through Indian Ocean with ports in Bangladesh, Sri Lanka and Pakistan.
The other also very important advantages include:
Finding an outlet for China’s overcapacity in its industries of construction, construction material, energy, transport, etc.;
Exploiting investment opportunities for China’s surplus capital; and
Moving China’s labor-intensive industries through development of infrastructures in the belt to the countries in the Belt where labor and other resources are much cheaper.
Reuters says in its report “Sri Lanka launches China-led investment zone amid protests” that the zone will create 100,000 jobs, which undoubtedly will mostly be jobs in labor-intensive enterprises moved from China.
According to Reuters, China’s port, airport and investment zone make “some countries, including India and the United States, nervous with Sri Lanka’s proximity to shipping lanes through which much of the world’s trade passes en route to China and Japan.
Those are trade passes to China and Japan not US or India, why shall they be nervous?
Anyway, we see from the developments Xi’s wisdom and vision. US president-elect Trump’s threat of a trade war may create difficulties for the export of China’s labor-intensive industrial goods, but Xi has taken a step earlier in building infrastructures abroad for China to move such industries to poor countries for export to the US. Xi has been subduing the US with his wise One Belt One Road strategy before the US starts the trade war.
The best way in military conflict is to subdue the enemy with strategy, the next, with diplomacy, the next, with fighting… Sun Tzu
Comment by Chan Kai Yee on Reuters’ report, full text of which can be found at http://www.reuters.com/article/us-sri-lanka-china-investment-idUSKBN14R0JG.
In its report “China’s chip policy poses risk to US firms and national security, White House says”, SCMP says that the US worries about China’s industrial policy targeting for leading position in semiconductor. That will give Trump justified reasons for a trade war with China.
China’s “options include subjecting well-known US companies or ones that have large Chinese operations to tax or antitrust inquiries”. “Other possible measures include the launch of anti-dumping investigations and scaling back government purchases of American products, according to the people,” says SCMP.
SCMP quotes Brian Krzanich, chief executive of Intel Corp. as saying, “Lowering the tax rates, making it easier for people to do manufacturing here, that’s what will bring manufacturing back to the US.” According to Krzarnich, US industry leaders do not want a standoff with China.
When this writer worked for a US law firm to help US companies establish joint ventures in China in 1980s, he often heard managers of US industrial firms complain the stringent product responsibilities on US industrial enterprises. That was a major reason why they had to move production to China.
Will Trump be so stupid as to start a trade war with China instead lowering tax and give other domestic incentives to US industries? That will test Trump’s wisdom.
Comment by Chan Kai Yee on SCMP’s report, full text of which can be found at http://www.scmp.com/news/china/economy/article/2060207/chinas-chip-policy-poses-risk-us-firms-and-national-security.
Reuters’ report “Trump names China critic Lighthizer as U.S. trade representative” gives the impression that with Lighthizer’s track records in stemming the tide of imports from Japan in the 1980s with threats of quotas and punitive tariffs, Trump will win his trade war with China by employing him.
The China now is quite different from the Japan in the 1980s when Japan’s market was much smaller than the US and depended on export to the US for Japan’s economic prosperity.
Chinese market is now much bigger than the US and is expanding fast. China is now switching to relying its own market from its dependence on export.
Reuter says in another report titled “GM’s China vehicle sales rise 7.1 percent year-on-year in 2016” that China has been GM’s top market for five consecutive years. In last December alone, GM sold 434,799 vehicles in China.
Will Trump fight a trade war to cause US companies to lose their major market?
The US is a big market for Chinese goods, but most of Chinese exports are products of low technology that China can easily transfer the production to other Asian countries where labor and land resources are much cheaper.
Does Trump want China to drive away from China popular American soft drinks, fast food, cars, airliners, medicines, mobile phones, etc.? Does he believe that China is unable to produce similar products to fill its domestic market?
Trade war will certainly hurt China but China will enjoy long-term benefit from taking back the parts of its domestic market monopolized by the US.
Without strong weapons and ammunitions, Trump will lose his trade war with China sadly.
I do not think Trump is so stupid as to launch a trade war with China to hurt the US. I believe that Trump will gain from win-win cooperation with China as it is unthinkable that a great nation may have three stupid presidents in a row.
Comment by Chan Kai Yee on Reuters’ report, full text of which can respectively be found at http://www.reuters.com/article/us-usa-trump-trade-idUSKBN14N0YA and http://www.reuters.com/article/us-gm-china-sales-idUSKBN14P145.
This is clearly shown in China’s official media China Daily’s editorial yesterday “Alarm bell ringing due to Trump’s new pick on trade” on Trump’s choice of Prof. Peter Navarro as his top economic advisor.
Navarro is a well-known hardline anti-China economist. He has written quite a few books to advocate his hostility against China.
The editorial says that Navarro’s appointment “is another sign of the confrontational approach the incoming Trump administration seems intent on taking in relations with China.” It expects that such confrontation will cause losses to both the US and China and warns Chinese companies to be on high alert to a more difficult business climate.
Source: China Daily “Alarm bell ringing due to Trump’s new pick on trade”, full text of which is reblogged below.
Alarm bell ringing due to Trump’s new pick on trade
China Daily | Updated: 2016-12-23 07:27
Because it is so emotionally charged, populism can be easily guided for a purpose. One example of this is the campaign rhetoric of Donald Trump about how foreigners have “raped” the United States by “stealing” many of its manufacturing jobs.
At the time, many Chinese were willing to laugh away such accusations against China as just more of the usual rhetoric－though more extreme－that has come to characterize presidential elections in the US. Now, however, there is real cause for concern as the president-elect has named economist Peter Navarro, known for his anti-China alarmism, as his trade adviser.
Trump in a statement announcing the appointment of Navarro as head of a newly created White House National Trade Council, praised the clarity of Navarro’s arguments. Which is perhaps not that surprising given the University of California-Irvine professor was the mastermind of the rhetoric Trump adopted during his campaign, and it had a similar tone to the apocalyptic language Navarro has used when accusing China of wiping out American manufacturing jobs and waging what he claims is an economic war against the US.
His appointment is another sign of the confrontational approach the incoming Trump administration seems intent on taking in relations with China.
It is an indisputable fact that China has not stolen jobs from the old manufacturing towns in the US, for those jobs were taken elsewhere by US companies who found that US consumers weren’t willing to pay the price for made-in-America products.
A point that was highlighted again on Tuesday in a Bloomberg report, which said American-made Macs have become an “albatross” for Apple since it started assembling them in the US in 2013 to “score political points” and some engineers are now pushing to move production “back to Asia”.
And the so-called economic war Navarro claims China is waging is the competition that has risen as China’s economy has moved up the value chain. Indeed the revelations of Edward Snowden showed that it is the US that has been using unfair means to gain an economic advantage.
That individuals such as Navarro who have a bias against China are being picked to work in leading positions in the next administration, is no laughing matter. The new administration should bear in mind that with economic and trade ties between the world’s two largest economies now the closest they have ever been, any move to damage the win-win relationship will only result in a loss for both sides.
Still, Chinese companies in the US should be on high alert to a more difficult business climate.