U.S. Companies In China Get Caught In The Trade War Crossfire President Trump recently tweeted that American companies would be better off without China. But many American companies earn a significant portion of their profits there.
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U.S. Companies In China Get Caught In The Trade War Crossfire

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U.S. Companies In China Get Caught In The Trade War Crossfire

U.S. Companies In China Get Caught In The Trade War Crossfire

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AILSA CHANG, HOST:

Last week, President Trump announced he was raising tariffs on more Chinese imports. At the time, he put out a tweet saying, we don't need China and, frankly, would be better off without them. But a growing number of American companies need China very much. They now make a sizable part of their profits there. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: When American politicians talk about China's economy, they usually talk about lost factory jobs. A huge number of U.S. companies have fled to China over the years in search of low-wage labor. But Shaun Rein of the China Market Research Group in Shanghai says that's only part of the story. As China's middle class has grown, he says...

SHAUN REIN: China has become the largest market to sell into for many of America's largest companies, like Starbucks, like Nike.

ZARROLI: One in 4 of the airplanes made by Boeing last year went to China. KFC sells more chicken in China than in the U.S. And General Motors and its partners sold nearly 4 million vehicles in China last year.

(SOUNDBITE OF CADILLAC AD)

UNIDENTIFIED ACTOR #1: (Speaking Chinese).

UNIDENTIFIED ACTOR #2: Cadillac.

ZARROLI: Increasingly, companies that hope to grow can't afford to overlook the Chinese market. China now buys more than a third of the engines sold by the Indiana-based company Cummins, says company spokesman Jon Mills.

JON MILLS: We have a number of manufacturing facilities there. And approximately 90- to 95% of the products that we make in China are sold in the China market.

ZARROLI: American companies still face plenty of barriers in China. Industries such as banking remain closed to outsiders. Intellectual property theft is a problem, and many American companies are still forced into joint ventures with Chinese partners. But China's middle class is now bigger than the entire U.S. population. And there are plenty of opportunities there, says Anna Ashton of the US-China Business Council.

ANNA ASHTON: The vast majority of our companies have consistently reported and continue to report every year that their China operations were profitable - and not just profitable but more profitable than their operations overall.

ZARROLI: And companies see a very bright future in China. Here's Starbucks CEO Kevin Johnson in an interview on Bloomberg TV last month.

(SOUNDBITE OF BLOOMBERG TV BROADCAST)

KEVIN JOHNSON: We're going to be able to accelerate and build new stores for a long, long time in China.

ZARROLI: But the trade war threatens to upend the plans companies have made. Shaun Rein of the China Market Research Group says the Chinese government has shown it's willing to punish companies when it's unhappy. Last year, he says, Marriott ticked off the government when it listed Taiwan as a separate country on its website.

REIN: So as a punishment, China actually blocked the marriott.cn website for one week in China, so nobody was able to book any hotel rooms.

ZARROLI: The government can get back at American companies by, say, slowing down the permitting process for new stores or encouraging consumers to boycott U.S. brands. Rein says the Chinese government hasn't done this in part because it sees American companies as allies. Many U.S. business leaders have criticized Trump's trade policies.

But Patrick Chovanec of Silvercrest Asset Management says U.S. companies remain in a difficult position.

PATRICK CHOVANEC: U.S. companies in China - doing business in China to serve the Chinese market have been basically orphaned by this trade war.

ZARROLI: For the Trump administration, he says, the trade war is about bringing American jobs back home. But if tensions get bad enough, he says, China won't hesitate to retaliate against American companies.

Jim Zarroli, NPR News, New York.

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