China’s spat with NBA highlights forces driving US-China divorce

Though the United States and China reached a new trade truce at the end of last week, the enduring controversy over Houston Rockets General Manager Daryl Morey’s tweet in support of Hong Kong protestors points to an irreversible fraying in the economic ties between the two countries.

By demanding an apology for Morey’s tweet and canceling several lucrative deals with the Rockets, China may have gone too far in its efforts to control the messaging of foreign firms. It has in the past targeted firms as varied as Gap, Marriott and United Airlines for failing to respect domestic political sensitivities.

But there is a long tradition of activism by U.S. athletes, and in recent years National Basketball Association players and coaches have been outspoken on political and social issues. That made the NBA’s initial climbdown and apology particularly jarring. The swift backlash from U.S. fans and lawmakers eventually forced the league to issue a second statement in support of free speech, though LeBron James Monday further fanned the controversy with statements criticizing Morey for not being more “careful” with what he tweets.

The danger for China and for U.S.-China economic ties more broadly is that organizations finding themselves in the same situation may have to juggle not only Chinese but also American values when considering their operations in China.

U.S. attitudes toward China are changing, with more questions being asked about the compromises made to maintain access to the country’s huge market. President Trump’s hardline on trade is the culmination of years of mounting frustration with the uneven playing field for foreign firms operating in China. Democrats and Republicans in Congress have found common cause in support for Hong Kong, Taiwan and Xinjiang, and continued press coverage of the demands of Hong Kong protestors for greater freedoms have captured the attention of the public.

At the same time, China under President Xi Jinping has grown increasingly intolerant of internal dissent and external criticism. Authorities respond aggressively to any perceived threats to the Communist Party’s legitimacy or the country’s sovereignty. They say that tensions in Hong Kong (and Taiwan and Xinjiang) are internal matters that foreigners have no business commenting on. 

Beijing has also taken pains to inflame nationalist sentiment to bolster popular support for its policies, and many of the violations of domestic norms by foreign companies are called out first by members of the public in online forums.

Moreover, China is increasingly positioning itself in opposition to the U.S. on the global stage. Whereas the U.S. has traditionally championed free enterprise and universal human rights, China defends its state-driven brand of capitalism and non-interference in the domestic affairs of other countries. It wants its system recognized as an equal to that of the U.S. and has been projecting its economic power outward – for example, through the Belt and Road Initiative – to achieve this aim. 

Against this backdrop, it seems unlikely the latest truce in the U.S.-China trade conflict will be able to reverse the steady deterioration in the bilateral relationship. In a deal that was months in the making, the U.S. agreed to hold off on a new round of tariff escalation in exchange for a series of small concessions on China’s part. These included a commitment to buy more U.S. agricultural goods and further open its markets to foreign financial services firms.

The U.S. and China also agreed to continue discussion on more structural issues at the root of the conflict such as forced technology transfer by foreign firms operating in China, subsidies given to domestic firms and state-directed industrial policies. But it won’t be easy for either side to make substantive compromises given the hardening of public opinion in both countries. 

Getting tough on China is a rare area of bipartisan consensus today in U.S. politics, whereas a Chinese belief that the U.S. is trying to contain China’s rise with new rules on trade is fueling nationalist sentiment.

Further decoupling of the two countries’ economies seems inevitable, with companies increasingly being forced to choose between one value system and another.

Kelsey Broderick is an analyst in Eurasia Group’s Asia practice. She previously researched macroeconomic developments and trends in China at the World Bank.