China Strikes Corporate America: Escalating Trade Tension

China Strikes Corporate America: Escalating Trade Tension

China Strikes Corporate America

Escalating Trade Tension

Last week, Washington put the Chinese telecommunication giant Huawei onto the US trade blacklist, continuing the US-China hostilities, which has further escalated the trade tensions. China accused the US of breaking the trade negotiations and in response put FedEx on notice, in a retaliatory move to the US sanction on technology giant.

According to a Reuters report on the 28th of May, FedEx recently transferred two Huawei parcels sent from Japan to the US, which is supposed to be sent straight to China. In addition to the two other Huawei parcels sent by Vietnam, these parcels however remained in the US. This issue had drawn great attention from the Chinese media and the public. The Chinese Foreign Ministry spokesperson, Lu Hao responded to a reporter’s question about whether China was worried about the US Federal Express’s stealing of Huawei’s technical information, “considering what has happened, the US Federal Express needs to give a reasonable explanation to Huawei and the Chinese public”, “I don’t know if this kind of problem happens frequently for FedEx? If it is, it should not be for such a big company. If not, then FedEx needs to explain why similar incidents have occurred in Huawei for again and again,” Lu said in the Foreign Ministry regular press conference.

On May 28, FedEx reissued a statement on its official Chinese Weibo, apologising for the small number of Huawei shipments being mishandled, but also stating there were no external factors (including political aspects) requiring FedEx to redirect the shipments. A great amount of analysis by the news media and public questioned whether if FedEx was approached by the US government, as four parcels were mistakenly sent to the United States within a few days. This error rate is unusual for a company that is well reputed. Chinese news agency Xinhua accused FedEx of violating Chinese law.

On account of the authenticity of the information and the trade war, the Chinese government started an investigation into FedEx. At the end of last week, Beijing claimed it would soon release a list of other “unreliable” companies, organizations and individuals, including many American companies. Moreover, the investigation on FedEx will be a warning to other foreign companies, organisations and individuals who do not comply with Chinese laws and regulations.

A new development on Trade war

The US-China trade talks ended last month after the US President doubled the tariff on USD$200 billion (AUD$288 billion) on Chinese goods. On the 26 of May, Beijing said it was still willing to resume discussions, but warned that it does not mean the government will back away from the trade war with the US.

On June 2, the Chinese State Council Information Office issued a white paper on “China’s Position on China-US Economic and Trade Consultations”. The paper blamed the United States for ignoring China’s ongoing efforts and significant progress in protecting intellectual property rights and ameliorating the business environment for foreign investors. This is the second time that China issued a white paper on China-US trade and economic issues, since last September. It said that Washington should assume “full responsibility” for breaking the trade negotiations and accused the United States of pursuing unreasonable requests after the trade negotiations.

The white paper pointed out the trade war did not bring the so-called “re-greatness” to the United States. Adding tariff measures will hinder US economic growth and productivity. The tariff change will increase the production costs of American enterprises, raise domestic prices in the United States and restrict US exports to China.

The white paper also claimed that the China-US manufacturing relationship is highly interdependent, and many US manufacturers rely on China’s raw and intermediate materials. In the short run, it is difficult for US manufacturers to find an alternative supplier and will bear the consequences of increased tariffs. Importing Chinese products are one of the important factors for the long-term low inflation rate in the United States attributed to their affordability. The increase in tariffs will further increase the sale price of Chinese products, and ultimately the American consumer will suffer from the fallout. According to a study by the National Retail Federation of the United States, a 25% tariff on Chinese furniture would cost US consumers an additional $4.6 billion expenditure per year.

On June 1, the Chinese government officially imposed a tariff on a list of US goods worth of approximately USD$60 billion. This move would eventually hinder the development of both economies.

There will be no winners in this internecine trade war, and the outcome will damage the development of the world economy let alone the two respective economies and harm or potentially reverse the macro-trend of globalisation.

By Louis Cai

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