With the trade war with China continuing to escalate, the stakes are growing larger every day for many companies. China has seemingly abandoned trade negotiations and is preparing to hunker down and fight the United States. And with 25% tariffs on Chinese imports set to kick in soon, China has begun to unleash its own weapons to get back at the US.
Given the unbalanced nature of the US-China trade relationship, US imports from China are significantly larger than Chinese imports from the US. That means that retaliatory tariffs placed by China have less of an effect on the US economy than US tariffs do on the Chinese economy. So the Chinese have been forced to find other means of retaliation.
The threat of banning the export of rare earth metals to the US is one way that China could pressure the US, although that would also harm China’s own rare earth producers. So China has begun to crack down on US companies operating in China. That comes as a response not only to the tariffs, but also to the US government’s decision to ban US companies from doing business with Chinese smartphone maker Huawei.
With Huawei’s partners now cutting off the company’s supplies of processors, operating systems, and other hardware and software necessary to production, the company stands a real risk of failing. That’s why China has decided to respond by threatening the rare earth export ban, and why US companies in China are now falling victim to potential trumped-up charges.
FedEx is already under investigation for so-called wrongful deliveries after sensitive Huawei corporate documents were re-routed to FedEx centers in the US. Now Ford has been fined for anti-trust violations related to the pricing of automobiles produced by its joint venture with Chongqing Changan Automobile. With car sales in China continuing to decline, that’s another nasty blow to Ford’s business, and the timing is definitely not coincidental.
Expect China to continue to fine, harass, and otherwise crack down on US companies attempting to do business in China. The Trump administration may cry foul, but at this point China feels like it has absolutely nothing to lose.
