Super Trends in the U.S.-China Relationship
Business leaders and policy makers should account for these six powerful trends shaping the U.S.-China relationship.
1. China Re-Isolates
China oscillates between periods of openness and isolation. Today, China is reentering a period of closure as it constructs contemporary “great walls” to separate from the outside world. Those barriers, which include digital firewalls and crackdowns on free press, insulate the Chinese system from external elements that could undermine leadership and disrupt social cohesion. The COVID-19 pandemic only has amplified this trend. Beijing both blocks unwelcome foreign competitors and embraces international firms that offer something unattainable in the short term from domestic companies. Thus, U.S. corporate leaders confront varied and changing conditions in China that often require simultaneously pursuing dual, and not easily reconciled, objectives: accessing vast consumer markets while preparing for the increasingly likely possibility of a “hard decoupling” of the U.S.-China economic relationship.
2. The Race to Reshore
China and the United States are engaged in a race to secure economic self-sufficiency. The victor will enjoy a considerable advantage in bilateral competition. Although China has pursued this effort for years, the United States made the shift more recently. A bipartisan consensus has emerged in Washington, D.C. that dependence on China constitutes a dangerous vulnerability. This view precedes the current crisis, and only has solidified as a consequence of the U.S. supply-chain deficiencies exposed by COVID-19. The bipartisan momentum in the legislative and executive branches favors policies to support companies seeking to reshore manufacturing capacity in critical sectors. Interest appears to be lasting: many of President Trump’s instincts favoring reshoring appear to be shared by Joe Biden, whose tax plan “promotes a ‘Made in America’ future.”1
3. China’s Uninstall Prevention Feature
China’s Great Firewall began blocking major U.S. Internet sites and apps more than a decade ago. Having concluded that this policy will continue indefinitely and (finally) encouraged by many of America’s tech leaders, U.S. policy makers have moved toward reciprocity. Actions by America’s allies and partners, notably India, to block Chinese Internet platforms has increased the urgency of this issue in Washington, D.C. A policy response remains nascent, but initial indications suggest real change: President Trump issued executive orders in August 2020 seeking to block TikTok and WeChat from operating in the United States and is reportedly contemplating placing the financial tech giant Ant Group on a trade blacklist.2 At the same time, the deep integration of the U.S. and Chinese economies in certain areas will be difficult to reverse. For example, Chinese companies remain listed on U.S. stock markets and continue to conduct large U.S. IPOs. As of October 2020, Chinese companies have more than doubled the amount raised in U.S. IPOs relative to the same period of 2019.3 The tension between American elected officials eager to disaggregate the relationship and domestic companies heavily reliant on China’s immense industrial capacity promises to create serious challenges for the tech, retail, and transportation sectors.
4. China’s System Engineering vs. America’s Brand Equity
Despite considerable global success, China’s companies still struggle to build competitive consumer brands. For example, among top global brands as ranked by Forbes in 2020, only one of 100 – Huawei – is Chinese, while more than 50 are America.4 Similarly, among the 124 Chinese companies listed in the Fortune Global list, only 12 percent are directly consumer-facing, compared with 37 percent of the 121 U.S.-based companies.5 Although the weakness of China’s consumer brands has been a boon for their U.S. competitors, many of whom continue to enjoy a strong following in the Middle Kingdom, long-term trends portend a far less favorable environment. U.S. brands make easy targets for boycotts fomented by Beijing: a June 2019 survey – conducted amid the U.S.-China trade war – found that 56 percent of Chinese consumers have “avoided purchasing an American product to show support for China.”6 In the United States, several major retails brands have struggled to adapt to the rise of online commerce, and the continued growth of China’s major tech platforms could pose a serious challenge to America’s longstanding dominance in global brand equity.
5. Conflict Management, Not Resolution
Recent flare-ups on the China-India border highlight the extent to which many of China’s geopolitical problems have no realistic prospect of resolution. India appears to recognize this reality: following a recent border skirmish, Samir Saran, the president of a Delhi think tank that works closely with the Modi Administration, reflected, “India may have to be prepared for series of limited skirmishes to occasional conflicts. Maybe that is the new normal of our region.”7 Former Japanese Prime Minister Shinzo Abe likewise has underscored the futility of resolving geopolitical disagreements with China, arguing China has a “deeply ingrained” instinct to pursue territorial disputes because they preserve critical domestic support.8 Former Malaysian Prime Minister Mahathir Mohamad similarly has emphasized the enduring nature of his country’s geopolitical problems with China, including with respect to the South China Sea: “The Malay States have existed near China for the past 2,000 years. We have survived because we know how to conduct ourselves.”9 U.S. corporate executives looking for reasons for optimism regarding the U.S.-China relationship should consider the lessons that Aksai Chin, the East China Sea, and the South China Sea offer: Beijing expects conflicts to persist long term.
6. Cracks in the Great Wall
While Western elites often portray China as a monolith, fissures in the country’s social fabric create internal pressures on the Beijing government. For example, newly tightened policies regarding local language and culture in China’s ethnic Mongol regions have generated protest and bear resemblance to those introduced years ago in Uyghur and Tibetan areas. Looking ahead, unrest also might increase among Hui Muslims, who despite their rebellious history in early-20th-century China thus far have escaped the harsh measures imposed on their Uyghur, Kazakh, and other Turkic coreligionists. The trajectory of China’s ethnic Korean minority, whose fate could be affected by Beijing’s interpretation of events on the Korean peninsula, also bears monitoring. Even in China’s Han core, important – and potentially destabilizing – issues loom large concerning economically-struggling rural areas, the migrant worker class, and the unresolved relationship between tradition and modernity.
Image: Lanzhou City, Gansu Province, China
Lanzhou is the capital of Gansu, a province in northwestern China that was the epicenter of several Hui Muslim uprisings in the late-19th and early-20th centuries. Gansu neighbors Tibetan, Mongol, and Uyghur areas where the Chinese government has been trying to suppress local religion and culture.
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1 “The Biden-Harris Plan to Fight for Workers by Delivering on Buy America and Make It in America,” September 2020, https://joebiden.com/wp-content/uploads/2020/09/Buy-America-fact-sheet.pdf.
2 Humeyra Pamuk, Alexandra Alper, Karen Freifeld, and David Shepardson, “Exclusive: Trump Administration to Consider Adding China’s Ant Group to Trade Blacklist– Sources,” Reuters, October 14, 2020, https://www.reuters.com/article/us-usa-antfinancial-blacklist-exclusive/exclusive-trump-administration-to-consider-adding-chinas-ant-group-to-trade-blacklist-sources-idUSKBN26Z2UT.
3 Scott Murdoch, Kane Wu, and Julie Zhu, “Chinese Firms Flood into U.S. Despite Delisting Threat,” Reuters, August 13, 2020, https://www.reuters.com/article/us-china-usa-listing/chinese-firms-flood-into-u-s-ipos-despite-delisting-threat-idUSKCN25925C.
4 “The World’s Most Valuable Brands,” Forbes, https://www.forbes.com/the-worlds-most-valuable-brands.
5 “Global 500,” Fortune, https://fortune.com/global500/2020/search.
6 “New Insight Research on Business Risks of US-China Trade Tensions,” Brunswick Group, https://www.brunswickgroup.com/us-china-trade-tracker-i11293.
7 Steven Lee Myers, Maria Abi-Habib, and Jeffrey Gettleman, “In China-India Clash, Two Nationalist Leaders with Little Room to Give,” The New York Times, June 17, 2020, https://www.nytimes.com/2020/06/17/world/asia/china-india-border.html.
8 Chico Harlan, “Japan’s Prime Minister Shinzo Abe: Chinese Need for Conflict ‘Deeply Ingrained’,” The Washington Post, February 20, 2013, https://www.washingtonpost.com/world/japans-prime-minister-shinzo-abe-chinese-need-for-conflict-is-deeply-ingrained/2013/02/20/48adbc80-7a87-11e2-9a75-dab0201670da_story.html.
9 Kate Beddall and Nani Yusof, “In Interview, Malaysian PM Speaks on China, Regional Balance of Power, Race Politics,” Benar News, September 26, 2019, https://www.benarnews.org/english/news/malaysian/question-answer-09272019150003.html.