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Chinese Consumers May Spurn U.S. Goods Even After Trade War Ends

June 27, 2019, 1:17 AM UTC

Hopeful investors have been driving up share prices, in part because they expect an end to the trade war between the U.S. and China this weekend during the G20 meeting, as Fortune has reported.

As Zhang Ping, China’s Consul General in Los Angeles, wrote in a statement to Fortune, “During the recent phone conversation between President Xi Jinping and President Trump, both leaders agreed to meet on sideline of the G20 Osaka Summit and agreed that the economic teams of both countries should maintain communication on the issues of current trade disputes. At present, the teams from both sides are in communication.” Assuming a solution could be more wishful thinking than analytic reason.

But what may be even more an example of high hopes is the thought that everything will go back to normal. A new survey of Chinese consumers shows a majority boycotting U.S. goods and having an increasingly negative view of American companies, which could be bad news.

“The Chinese market is huge—it’s a large market that U.S. companies want to have access to,” said Nicole Lamb-Hale, managing director of Kroll Associates and former assistant commerce secretary in international trade during the Obama administration.

In their 2018 fiscal years, for example, 43.5% of General Motors sales were in China; 20.6% of Apple’s sales were from the country. And as of Sept. 30, 2018, 23% of all company-owned and operated Starbucks locations were in China, with China and Asia Pacific representing 18.1% of net revenues.

Up until now, says Lamb-Hale, Chinese consumers have been “pretty favorable toward U.S. brands.” But that may be over.

In the new survey of 1,000 consumers—which may seem like a small number compared to the 1.4 billion population but which is potentially large enough for a mathematically valid poll— while 77% “often buy American goods,” more than half—56%—”has avoided buying an American product to show their support for China,” according to the survey data from its source, U.K.-based PR firm Brunswick Group.

In addition, 68% of Chinese consumers said their “opinion of American companies has gotten worse” as a result of the trade dispute.

Some experts say that such studies should be carefully considered. “Polls from inside China must be taken with a substantial amount of salt,” said Lionel Jensen, associate professor of East Asian languages and cultures at the University of Notre Dame.

“The Chinese government was previously actively promoting in a jingoistic temper the protection of the Great Wall of the ‘Motherland’ and urging the population to take up a ‘Long March’ in defense of China’s war against US goods,” Jensen said. That campaign ultimately amounted to little.

It could be that the figures aren’t representative. However, Linda Lim, professor emerita of corporate strategy and international business at the University of Michigan and long-time China watcher, thinks the results “look pretty reliable.”

“Chinese people’s own view has evolved in a much more nationalistic direction than before,” Lim said. “This is even stronger now because of all the rhetoric that has come from the U.S. You can quote from American sources saying China’s a strategic competitor to we can’t allow them to get ahead of us.” Even many Chinese who may not be fond of the government have rallied.

“Chinese tastes for U.S. goods such as Starbucks are well established even as Luckin, its China competitor, is expanding its presence,” Jensen said. “Fear of loss of market share by US companies substantially embedded in China would be misplaced.”

William Hurst, an associate professor of political science at Northwestern University agrees, but with reservations. “I think demand should largely recover when and if the current tensions are resolved,” he said. “The bigger issue will be with manufacturing and services that are moving to third countries to get around tariffs and trade restrictions China and the US are placing on each other.”

There is also the added economic danger, according to Lim, that Chinese goods have improved in quality at a lower price than many American brands and may become increasingly the first choice.

“Then you discover, the Chinese substitute for Starbucks is not bad,” Lim said. “Once people switch, it’s very hard to get them to switch back for a lot of psychological reasons.”

Lamb-Hale sides with Lim. “The longer that this goes on—and I’m hopeful there’s some progress at the G20 around keeping the negotiations going—the riskier it is that even when things loosen up, people will have moved on,” she said.

The result could be a Huawei phone in every pocket, a Dongfeng Motors car in every garage, and a Luckin Coffee on every corner.

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