Trade tensions hitting U.S. businesses in China

People walk past a store advertising a sale in a shopping mall in Beijing, Friday, Aug. 2, 2019. President Donald Trump intensified pressure on China to reach a trade deal by saying he will impose 10% tariffs Sept. 1 on the remaining $300 billion in Chinese imports he hasn't already taxed. (AP Photo/Mark Schiefelbein)

WASHINGTON (The Straits Times/ANN) — Trade tensions are putting American companies at a disadvantage in China, with nearly half reporting that they are losing out on sales in the country, according to an annual survey out yesterday.

The U.S.-China Business Council (USCBC) survey also shows that companies continue to see China as an important market, despite President Donald Trump’s recent urging of American companies to stop doing business in China and bring manufacturing back home.

But over a year into a trade war marked by escalating tariffs on both sides, companies are less optimistic about China than before, with more investing less in the country and planning to move operations out of it.

The survey by the USCBC, which comprises about 200 companies that do business with China, offers a snapshot of how tariff uncertainty and the trade conflict are affecting American companies in China. It also shows how longer-term trends like rising costs and unfair competition in China are causing them to shift their business strategies.

About 81 percent of the firms reported that trade tensions have affected their business operations in China in the past year, up 8 percentage points from the year before.

They were hit by retaliatory tariffs from both the U.S. and China, which the survey said led them to become less competitive in price.

“The trade war is having a tangible, negative impact on American companies. Almost one-half of our companies say they lost sales in China due to tariffs. This is a competitive benefit for European, Japanese or Chinese competitors,” said USCBC president Craig Allen.

“Losing market share is easy and gaining it is very, very difficult. So these costs are potentially long term,” he added.

This year, 40 percent of respondents said they lost out on sales in China due to their Chinese partners’ concerns about doing business with U.S. companies, seven times higher than the year before.

“Chinese customers are concerned about supply chain links that depend on American companies, which they increasingly view as unreliable business partners as a result of the volatility of the bilateral commercial relationship,” according to a report that accompanied the survey.

Trade tensions also caused 43 percent of U.S. companies to shift suppliers or sourcing, due to uncertainty over continued supply.

While the vast majority of U.S. companies — 97 percent — reported that their China operations remained profitable, fewer said they were optimistic about China in the long term, which the report attributed to Beijing’s uncertain policy and regulatory environment, unfair competition and rising costs.

More companies said they had reduced or stopped new investments in China — 17 percent in the past year, twice as many as last year.

U.S.-China tensions were behind the uptick, with 60 per cent of respondents pointing to increased costs or uncertainties due to the tensions as the reason for their decision, and 47 percent citing the political climate for American companies in China. Neither reason was cited in previous years despite being an option, said the report.

Still, not many companies have moved their operations back to the U.S. About 3 percent said they did so in the past year, a level in line with previous surveys. Eleven per cent said they were moving their Chinese operations elsewhere, with more than half citing rising production costs in China.

However, almost just as many said that increased costs from the tense US-China relations contributed to their decision to move investments out of China, a sign that tariffs are increasingly denting company profits.

By Charissa Yong