Any US-China trade deal should be taken with a grain of salt
This post originally appeared on The Hill
Doing business in China or even competing against Chinese companies is difficult enough for large corporations. But for smaller companies it has been historically harder. Over the past two decades, I’ve sat and listened to many of my clients — owners of small and medium-sized companies — complain about this.
Many of these allegations have proven true. As part of the country’s aggressive growth plans, the Chinese government has had its hand in helping many of its homegrown companies gain market share by propping up their finances while they sell products at a loss.
The Chinese government has been accused of manipulating markets, playing games with its currency and creating artificial barriers for companies attempting to sell their products there.
Even small U.S. businesses that have been gallant enough to establish a foothold inside of China have unfortunately faced unfair government requirements to enter “joint ventures” with Chinese companies —relationships that provided an easy way for those “partners” to steal their ideas and technologies.
So there’s no argument that, when it comes to doing business, the playing field has been significantly tilted toward China. American companies wanted something done.
So our president took action. Tariffs were levied. Harsh words flew. Companies making cars and farmers growing soybeans have suffered. Consumer prices rose. Business investment took a hit. Economic growth here was hindered.
But now, it seems likely that Presidents Trump and Xi will sign a trade agreement by the end of the month over a couple of steaks in Mar-a-Lago. A new era of economic peace and prosperity between the two superpowers seems to be at hand.
But is it really? For most U.S. businesses, it will be the same old song and dance.
Sure, the Chinese will “commit” to buying more U.S. goods and to reduce our trade deficits by a few hundred billion dollars. Yes, they will “pledge” to “better protect” our intellectual property and no longer require that we transfer our technology to our Chinese business “partners.”
No doubt the Chinese will promise to cut the red tape that so many U.S. companies must navigate in order to get access to their markets. They’ll also vow to make their legal system more transparent and fairer for foreign companies.
But does any smart business owner really believe these promises? None that I know do. You certainly can’t blame them for having their doubts.
China is not a country ruled by law. It is ruled by the Communist Party, and that party is ruled by one man: President Xi. This is not a transparent system governed by checks and balances and questioned by an open media.
It’s a system that heavily favors its own, and any significant dispute between U.S. and Chinese companies, regardless of what “the law” says, will ultimately be resolved as such.
This is a country that restricts travel of its citizens based on their “social behavior.” It is a country that is brazenly building a string of islands in the contested South China Sea to establish a dominating military foothold in the region.
This is a government that was behind a 12-year cyber-espionage campaignto steal intellectual property from the U.S. government and its corporations and continues these activities.
It’s a country that restricts free speech and will come down hard on any company or person that it deems is acting against its own national interest.
This is not a great country to do business with. But that doesn’t mean that there are no opportunities. Intrepid entrepreneurs should take this temporary ceasefire as a chance to make a few bucks while the environment is good.
Go ahead: Jump into the Chinese market. Try out a small partnership with a Chinese company. Test the waters with a few products. This is your chance to profit. But be warned: Don’t expect your venture to be a long-term one.
Why? Because there can be no reasonable expectation that a trade agreement with China will be enforced. The Chinese can promise and commit and pledge all they want. But as the country’s economic and military might grows, future U.S. administrations will be less emboldened to contest how the Chinese stand by their commitments.
That is why any trade deal with China is never going to be a good deal for U.S. companies over the long run.