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U.S. Companies Aren't Bailing On China Just Yet

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Earlier this month, Trump ordered U.S. companies out of China.  In Twitter litany last week, Trump opined that China has “stolen” vast amounts of money from the United States for decades. 

“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA …”

No one’s quite sure what that means, exactly, or if it was simply another random rant that wasn’t meant to be taken seriously amid the 2020 election campaigning. 

Regardless, companies aren’t really rushing to pack up and come home--even if that was a major selling point for the trade war. 

According to a survey by the U.S.-China Business Council, 87 percent of U.S. companies have no plans to quit China. 

(Click to enlarge)

But that leaves 13 percent of American companies who do plan to move all or some of their business out of China. 

It doesn’t mean they’ll be returning ‘home’, though. Only 3 percent said they would be relocated on American soil. 

The survey also showed a clear increase in negative impact for U.S. companies operating in China. 

Over 80 percent of American companies said trade tensions had negatively affected their operations in China. That represents an 8-percent increase over 2018. Specifically, trade tensions “are having a measurable impact on U.S. company competitiveness in the Chinese market, especially their competitiveness vis-a-vis domestic Chinese companies”. 

(Click to enlarge)

Source: US-China Business Council

What exactly does this measurable impact entail?

Notably, American companies report lost sales and ceding market share to foreign competitors. 

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This year, 37 percent, a figure the US-China Business Council calls “staggering”--have indicated lost sales during their Chinese partners’ “concerns about doing business with American companies”. That is a seven-fold increase over last year. 

(Click to enlarge)

But no one’s ready to leave. 

Why? Because operations are still overwhelmingly profitable. No one packs their bags until it makes economic sense to do so. We’re not there yet. 

The survey shows that only 3 percent of American companies said their China operations were not profitable. That shows no change from 2018. 

While most U.S. companies are staying put, the few that are divesting are doing so not just because of trade tensions, but also because of rising costs in China, according to the Council. 

New investments, however, shows signs of being delayed indefinitely. 

“Nearly 30 percent of respondents reported slowed, delayed, or cancelled investment in the United States or China due to the uncertainty from heightened tensions--twice the number reported in 2018,” the survey said. 

In one example, the media cited Jon Gabrielsen, a market analyst and advisor to automakers and suppliers as saying that General Motors, for instance, would take a huge hit if it were forced to leave China because 43 percent of its annual global vehicle sales are in that country. In other words, GM would lose its future growth potential. 

By David Craggen for conil.me 

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