“We are encouraging both governments to recognize that it’s time to start talking specifics.”
Erin Ennis is the senior vice president of the U.S.-China Business Council (USCBC). She previously worked as vice president at USCBC from May 2005 to February 2015. Ennis also worked as an assistant to the deputy U.S. trade representative and congressional affairs specialist for the Office of the U.S. Trade Representative during the Clinton administration before serving as assistant to the vice chairman at Kissinger McLarty Associates from June 2001 to April 2005. Ennis was also a legislative aide for former Sen. John Breaux, D-La., from March 1992 to August 1996.
Q: Can you tell me a little bit about what the U.S.-China Business Council does and what your work entails?
A: Sure. U.S.-China Business Council represents American companies that do business with China. That means we’ve got companies that make stuff in the U.S. and ship it to China. We’ve got companies that make stuff in China and ship it to the U.S. The vast majority of our members are in the China market to actually sell to Chinese customers so aren’t necessarily dealing with cross-border trade as the primary purpose of their business there.
Q: Are you hearing anything from people who engage in trade with China or not so much?
A: Oh yeah. Just because it’s not their primary business doesn’t mean we don’t have companies who are affected by all of these things. Our members tend to be pretty big international companies — and some smaller companies as well. Even if you aren’t directly affected by a tariff, overall U.S.-Chinese relations can affect how you’re doing business. So yes, we are definitely hearing from companies on all sides of the spectrum.
Q: Got it. We’ve seen the U.S. implement Section 301 tariffs, with more proposed. Have you seen any of your members stop, or consider stopping, imports from China altogether?
A: So far we haven’t seen a significant move towards that. The sentiment that we’re hearing a lot from companies is a little bit of business reality and a little bit of political calculation. The business reality is it’s pretty hard to change your supply chain on short notice. So, while many companies, I think, were hopeful that their product either was not going to be included, or that they might still be able to get an exclusion, we haven’t seen a whole lot of shifting yet. But companies also are hopeful that these issues are going to be resolved and that the tariffs are just short-lived, in which case it will be a short-term increase in what their business costs are, but one that will have a long-term impact on their businesses.
Q: Are you seeing any companies stop a portion of their imports or has that not happened either?
A: I haven’t seen it yet. Again, that doesn’t necessarily mean that it won’t happen, but we really are only three or four weeks into this first round of tariffs, and so at least among our members, halting imports from China isn’t the first thing that they are doing. If we get to the point where more tariffs are put in place, you know, there’s $16 billion [in proposed tariffs] there’ll be hearings on this week and then another potential $200 billion, and then once the $16 billion’s implemented, the Chinese may retaliate again, which could trigger another $200 billion in proposed tariffs. At that point, we may see companies both reading the tea leaves a little bit differently than they are right now about how long this may last, but also finding that alternatives may be better options.
Q: Same question for exports. Have you seen any companies stop, or consider stopping, exports to China after this retaliation, or have you seen them stopping a portion of the exports?
A: The companies that are most affected so far by Chinese retaliatory tariffs are agriculture companies. A significant tariff on those products essentially prices them out of the market. While I wouldn’t say that we have seen companies by choice halting their sales to the Chinese market, we are hearing from companies who are beginning to be priced out of the Chinese market.
Q: Wow, OK. So you’re sort of seeing exports reduced as a function of getting crowded out?
A: Well, it’s not so much a matter of getting crowded out, but in agriculture in particular, you can look to the fact that the Chinese have been diversifying who they’ve been buying soybeans from. … That’s been a major part of U.S. agriculture production sales to China. The price is just too high for most Chinese customers at this point. A lot of it is now essentially just getting stockpiled here in the U.S. in search of a new market.
Q: Are your members concerned with intellectual property-related practices by the Chinese government? If so, what are some of those specific practices that your members have experienced over there?
A: Yeah. There actually is very little disagreement about the whole core of why we are at the point of having tariffs imposed at this point, and that is companies do genuinely have concerns about Chinese IP and technology-transfer regulations. The way companies see it actually, general IP enforcement in China has been steadily improving over the years. There’s still much that needs to be done, but companies report to us in our annual surveys each year that they have seen year-on-year improvements. It’s a little bit like turning a very large ship for that matter. It takes a while to make it all the way around, but you can start seeing some of the movement on it. In terms of what companies are seeing, the primary areas that we hear from companies are concerns about whether the courts are equally adjudicating cases where there’s domestic companies and foreign companies at odds over an IP practice.
There are some concerns about issues in the licensing process, or in the approval process, as a company wants to do business in China, that more information is required to be disclosed during the regulatory process than happens in other markets. So there are concerns among companies that that extra information, in an environment where there’s not any guaranteed protection that the companies have during the regulatory process, that information might be shared with domestic competitors. And then the more obscure but still important area, China has a variety of regulatory functions that you have to pass.
If you want to open a new factory or if you want to do business in the market, such as meeting energy-efficiency requirements, those also require frequently more information to be disclosed than in most other markets in the world and frequently have a component that requires an expert panel review, which might include one of your competitors on it. So, definitely general concerns with how the IP and tech-transfer regime is administered, even though … there is no smoking gun in terms of one specific area — or even five specific areas — that every company has a concern about.
Q: What are the prospects for changes in China’s IP regime at this point and how do tariffs bear on that?
A: I think, actually, the system is getting better. What we do hear from companies is, as I mentioned, that kind of slow-moving barge where things are generally improving. On the regulatory side and some of these other issues, the government, I think, is listening and does seem to recognize that as it wants to become a more innovative economy, that the kinds of protections that foreign companies had been calling for are the kinds of things that will be important to ensuring that companies are comfortable doing business in China and that their own domestic Chinese companies will be protected. How do the tariffs affect this? I will say this. Neither side seems to be willing to give in, to acknowledge that what they really need to be talking about is the specifics on how to address foreign company concerns.
At least at the outset, there has been no effect on these issues, and that continues to be our primary concern about the use of tariffs. It certainly has gotten China’s attention on the issues, but if that does not lead to China being given very specific things that we know would meaningfully address what these concerns are, we have concerns that the tariffs and the loss of market share and the impact on cost is going to be essentially for naught, because the issues remain the same problems without any sort of engagement and dialogue to try to address them.
Q: Aside from retaliation by China in the form of tariffs, are your members reporting any other barriers that China is imposing?
A: It’s all anecdotal at this point, but there certainly are a number of reports that have come out of higher levels of inspections at customs borders that companies are being asked for. They’re seeing more frequent visits from enforcement officers on environmental rules and those kinds of things. Nothing that I can tell you is sufficient to say that everyone is experiencing it. The important thing in a time like this is that there’s going to be potentially some direct impacts on companies, and there’s also going to be some things that China’s been doing all along that are nothing new and may not be related to U.S.-China tensions. Companies right now are in a situation of having to evaluate why something is happening to them. Is it just a regular normal enforcement action or is it something related to U.S.-China tensions? Everybody’s probably going to come to a little bit of a different answer at this point.
Q: It’s not something you can sort of point to and say, “This is an exact consequence of this,” it seems like.
A: Exactly.
Q: Do you perceive any specific end goals the U.S. is seeking to gain as this dispute continues?
A: Well, the whole point of the 301 case that started down the road of all of these tariffs was to address those IP and tech-transfer issues. So the end goal, we hope, is addressing those concerns.
Q: Have you seen those goals preserved or voiced in these discussions?
A: No. Right now what seems to be happening between the two governments is that the United States has stated repeatedly that China knows, that China made commitments over many years in many of these areas, and so it feels that it has a road map. The United States is arguing that China already has a road map of what needs to be done to address U.S. concerns. China’s argument back is that if that list isn’t prioritized, then it does nothing to address the underlying concerns and get to a point where the tariffs are lifted. So at this point it’s at an impasse. It is among the things that we are encouraging both governments to recognize that it’s time to start talking specifics. This is not a time to be engaging in bad relationship management. It’s time for some healthy relationship management, of specifically stating where the concerns are, and what acceptable progress would look like and then pressing China to actually meet those requirements. We think that there is still an opportunity to get that done, and we continue to encourage both governments to get back to the table.
Q: What advice are you giving members as they seek to limit impacts to their bottom lines over all this?
A: We do encourage companies to consider all of their options. We don’t know how long this situation is going to go on. It could be, at any given point, that the administration comes out with an announcement and says that the two sides have agreed to sit down and talk, and they will suspend the implementation of tariffs until they determine whether those talks are successful or not. That would be a great outcome. I still haven’t given up hope that we can get there, but there is a possibility obviously that this could be prolonged. So our primary guidance to companies is, number one, be as fact-based as possible as they consider these situations.
As I mentioned, not everything is going to be tied to Chinese retaliation. It could simply be laws and regulations being implemented as they always had been, even if that’s not necessarily something that we feel is up to the same level of transparency that we hope to see in governments. But also recognize that there may be some disruptions in all of these issues in terms of increased inspections or higher enforcement level on environmental regulations and those kinds of things. Companies have a role to play by bringing their top standards to China’s market and ensuring that they are in compliance with the laws and regulations, not just in China but in any market where they do business and to remain engaged on those issues.
Foreign companies are an important part of China’s economy, and that’s not going to change even in tense U.S.-China relations. There is a strong argument to be made that companies should always evaluate what their specific circumstances are and determine if the costs are fine and how long they can wait out the difficulties, but also recognize that they may have a voice in being able to acknowledge that progress does need to be made, and specifics will be helpful, but that they continue to be strong contributors to both economies.
Talking Trade with USCBC’s Erin Ennis
