The US- China Trade War.
The USA and China have a decades-old trade relationship when in 1979 both nations established diplomatic relations and signed a bilateral trade agreement. In 1984, the USA was the third largest trade partner of China while China was the 14th largest trade of partner of the USA. They started from $4 billion trade and the volume was about $600 billion in 2018. It is necessary to mention here that due to the US-China Relation Act of 2000, China was allowed to join WTO (World Trade Organization) in 2001, when the US Congress approved the US-China trade agreement and China's accession to the WTO. That time the US government was of the view that China's joining the WTO would enhance and advance the USA's economic interests but after this joining, the USA has continuously been accusing China of failing to comply with the international trade laws, rules and regulations and not addressing the grievances of Washington. The current US Administration is fully convinced that due to China's manipulating their currency and trade, US companies cannot compete with Chinese companies without imposing a heavy tariff on Chinese exports, because in 2017 the USA had a $336 billion trade deficit with china of an overall $556 billion deficit. In view of this deficit, President Trump imposed a 10 percent tariff of almost $300 billion on Chinese imports. China, in response, announced plans to implement its own tariffs on 128 US products. Of those products, 120, such as fruit and wine, will be taxed at a 15 percent duty and the remaining eight, including pork, at 25 percent.
In the first half of FY2019, US companies invested almost $6.8 billion in China, and the major part belonging to greenfield projects, electric vehicle maker Tesla's factory in Shanghai and other significant investments in manufacturing sectors. Due to ongoing trade conflict between the two countries, now American companies are doing business with enormous risks because not only trade war but the other major reason of pro-democracy protests in Hong Kong is also there. Though there has been a truce in the trade war, the protests continue. Experts are agreed China's economic slowdown and trade conflict with the USA have already created huge risks for business. The tariff imposed by the China was also having significant impact on US business in China; specially small business have been slammed by the China tariffs and it has been observed that the China tariffs have enhanced the cost of business for 37 percent or more than one-third of the small businesses across the USA. Meanwhile China has offered tax incentives to motivate US companies to sustain and stay in China and it has announced the exemptions of foreign companies from paying income taxes are under consideration so that the foreign companies, especially US companies, can continue their businesses in China. Some experts are saying that China's exemption from certain taxes are a way to boost business as well as to counter the US incentives.
US companies say that they are not playing on same level field and they are also criticizing that China is not fair with them but they are not going anywhere and they will compete with the domestic companies, even though they get heavy government subsidies. Tesla CEO Elon Musk says that 'China is a future'
Tesla was just one automotive and energy company, but during the current trade dispute it has gained the confidence of China, and has been given status as one of China's own companies, even though it is not in fact owned by the Chinese. China thinks that the success of Telsa is not only success of Telsa but also the success of China, as it can lower the level of pollution in the country. Meanwhile Tesla also slammed the tarriffs imposed by China and has stated its cars cost 60% more than its competitors. Tesla Inc buitd a factory in China in less than a year near to Shanghai. In view of its successful business, the company has manufactured Model 3 ahead of schedule, and it was expected that this development would help in reduction of tariff and transport cost. The Telsa Gigafactory in Shanghai is one its most precious assets and is being a main source of its expansion. Now the company is claiming the Model Y production will start almost half year before schedule in China.
Even before the trade truce was agreed, recent developments and negotiations had motivated investors that there was a trend towards de-escalation between the two nations and they had been optimistic for at least a couple of months as J. P Morgan was already hopeful that the things will move forward smoothly and without any further trouble. JP Morgan has offered investment products, which may include bank managed investment to show trust and fiduciary services. In its annual report of Cross-Border Consumer Research and marketplace progress with a snapshot of the where, why and how of international commerce, Paypal has also said that in the start of the New Year Chinese shoppers will enjoy new things from abroad. It is necessary to mention here that despite the trade tension China's central bank permitted the US companies to take and make payments by Chinese payment group Gopay. But the Paypal has licences to provide domestic and cross-border web and mobile payment services in China.
As per People's Bank of China, almost Rmb277 trillion ($39 trillion) of mobile payments made in last year. There is no doubt that PayPal has already successfully challenged the dominance of national players in China and in future it will also pay a vital role in payments of business transactions, especially in cross-border payments.
Before discussing the future of US businesses in China it most pertinent to mention here that the US-China Business Council (USCBC) survey concluded that 80 percent of US companies have been badly affected by the recent trade tensions between the two nations and only 20 percent are optimistic about their future prospects in China in the next five years. Some indications show it may take more than a decade to re-establish confidence among US companies. Some experts said the trade war had entered Phase 2 and it has been observed by economic analysts that the tariffs imposed by the US President and his counterpart have hit in their own countries.
A US jounal Foreign Policy has said that Washington needs longer term plan to deal with the Beijing. US companies say that they are not playing on same level field and they are also criticizing that China is not fair with them but they are not going anywhere and they will compete with the domestic companies, even though they get heavy government subsidies. Tesla CEO Elon Musk says that 'China is a future.'