US-China Trade Relations – Political Risk Becomes the "New Normal"

August 30, 2019

Following a week that began with a China-trade “Tweet Storm” from the US President, tension and uncertainty are rattling markets and creating a host of new political pressures on both sides of the Pacific. In the United States, even powerful elected Republicans are beginning to fear Trump’s recent rhetoric and tariff policies could risk undermining economic growth (and with it, 2020 electoral prospects). One prominent Trump supporter, Senator Ron Johnson (R-Wis.), stated: “The biggest risk to the economy is the whole trade situation . . . [It] has injected a huge dose of uncertainty and instability.” See “Republicans grow anxious about the Trump economy,” Politico 8/29/2019.

 

With America’s contentious election season right around the corner, some of the Republican Party’s key constituents also now find themselves (and their business interests) caught in the crosshairs. DC-insider publication, The Hill, recently reported: “The clearest example is U.S. agriculture. Beijing hammered American farmers in every round of its retaliatory tariffs. Those policies matter. China was the second largest buyer of U.S. agricultural products in 2017. In 2018, China fell to fifth place as purchasing tumbled due to trade restrictions. The result was losses of $10 billion, as U.S. agricultural exports to China dropped from $19.6 to $9.2 billion.See “Trump’s bad math on Chinese Tariffs,” The Hill, 8/27/2019 (emphasis added). Even President Trump himself was sufficiently concerned that he apparently lied about having received calls from high level Chinese officials seeking to restart talks in an bid to boost stock prices. See “A rattled Trump scrambles for victories ahead of election,” CNN, 8/28/2919. This combination of confused signals, election year pressure, Chinese tariff retaliation and China’s more aggressive stance on Hong Kong present a combustible mix of dangers without any immediate end in sight.

 

KEY LESSONS: For individuals and corporations engaged in US-China cross-border transactions and trade, now is no time for complacency. First, everything is changing on a minute-by-minute basis. Ensuring your team is on top of the news (and understands its cultural context) is critical. Second, if you don’t already have rapid reaction plans (e.g., crisis management) AND a longer-term strategy in place, creating both should be absolute priorities (this includes updating all relevant compliance procedures). Third, culturally appropriate communication with your customers, investors and other stakeholders is essential. Just because the present US government and China are fighting doesn’t mean YOUR business relationships should suffer.

 

At the end of the day, we’re all in this together.

 

To learn more about how JLG can assist with US-China trade matters, political risk management and cross-border communication, you can schedule a free consultation online or contact us to make an appointment.

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