China’s New Trade Strategy: Threatening U.S. Companies

Starting August 23, an additional $16 billion dollars of exports from China to the U.S. will be subject to a 25% tariff, as the trade war between the two nations continues unabated. In preparation for these tariffs, China signaled that it would impose an equivalent amount of tariffs on U.S. imports. With both sides far apart, China has searched for alternative strategies to force a resolution of the deteriorating trade situation.

Earlier this month, an article published in the People’s Daily, an official newspaper of China’s ruling Community Party, signaled China’s intention to weaponize American corporations operating in the country. Using strongly phrased language, the piece identifies Apple as a poster child of American success built on the backs of Chinese workers and Chinese consumer demand. The article urges Beijing to address this imbalance by demanding that Apple to share a greater portion of its profits with China.

Up to this point, China has been careful to avoid nationalist appeals in the ongoing trade debate. The People’s Daily article signals a significant change in sentiment. By threatening companies like Apple, Beijing can pressure them to vocally oppose the Trump administration’s aggressive trade actions against China and to push Washington to resolve the worsening trade conflict.

In the past, China has pulled the nationalist card in disputes with other nations such as South Korea and Japan. In China’s tightly controlled media environment, the slightest expression of unfairness in a news outlet can stir the passions of the crowd, resulting in boycotts, protests, and even violence against foreign entities. The article targeting Apple suggests that Chinese policymakers may sweep other American companies into the debate as tensions rise.

The list of companies that may be targeted next represent a wide swath of America’s corporate landscape, including industrials, health care, technology, automotive, entertainment and media, and consumer non-durables businesses. United Technologies, Caterpillar, General Electric, Johnson & Johnson, Microsoft, IBM, Disney, Cargill, General Motors, Ford, and Procter & Gamble all have significant production capacity and sales in China, making them vulnerable to Chinese efforts to weaponize their influence.

As it considers its next move, Beijing will have to proceed carefully. Escalating nationalist sentiment and enlisting American corporations to do its bidding can be a double-edged sword. If American companies feel they are no longer welcome in China, or subject to the winds of political expediency, they have the option of pulling out of China and building their supply chains elsewhere.

American companies heading for the exits would be a significant setback to China’s economy. As the saying goes: If you’re aiming at your rival, make sure you don’t shoot yourself in the foot.

Arthur Dong is a distinguished teaching professor of strategy and economics at Georgetown University’s McDonough School of Business.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.

Read More

Great ResignationClimate ChangeLeadershipInflationUkraine Invasion