Deteriorating relations with China put US companies on edge

American businesses are wary of the growing animosity between the U.S. and China, particularly as Trump administration officials are starting to name and shame companies they see as bowing to Beijing.

The business community is closely tracking speeches and other public remarks from officials like Secretary of State Mike Pompeo, and they’re increasingly concerned over rhetoric in recent weeks that paints China as the number one national security threat to the U.S.

But firms aren’t making any quick moves to exit the world’s second-largest economy. While the global COVID-19 pandemic has prompted some businesses to seek additional supply chains elsewhere, they’re still hopeful Washington and Beijing will find a way to patch things up.

“In general, American companies oppose the Trump administration’s views on China,” said Shaun Rein, founder of the China Market Research Group.

“They make a lot of money here, they don’t want to leave. The only time they want to leave is to duplicate supply chains.”

Administration officials, however, are putting public pressure on several high-profile companies by characterizing competition between the two countries as an ideological battle for the future of the free world. In doing so, they have pointedly attacked American companies doing business with China.

“In Hollywood, not too far from here – the epicenter of American creative freedom, and self-appointed arbiters of social justice – self-censors even the most mildly unfavorable reference to China,” Pompeo said Thursday during a speech in California.

Attorney General William Barr, in remarks delivered in Michigan on July 16, singled out Disney, saying failure to call out Beijing for its intellectual property theft and censorship will destroy the free market.

“Like other American companies, Disney may eventually learn the hard way the cost of compromising its principles,” Barr said.

The remarks are sending ripples through the American business community in China. Executives generally agree with the administration’s criticisms of how the Chinese government operates, but feel they are being unfairly targeted without any clear direction of what steps to take next.

“We publicly and privately disagree with China’s government on a number of issues and want to encourage both countries to peacefully resolve their differences,” said Doug Barry, director of communications for the U.S. and China Business Council, an advocacy group that represents about 220 companies that do business in China.

“To do this, the U.S. government needs a smart, comprehensive long-term policy which our members hope to play an important role in developing.”

Further worrying is Barr’s suggestion that U.S. executives could run afoul of the Foreign Agents Registration Act (FARA), a law that requires certain individuals to register as lobbyists for a foreign government.

Barr, in his Michigan speech, said American business leaders “should be alert to how you might be used and how your efforts on behalf of a foreign company or government could implicate” FARA.

His comments drew a rebuke from Barry, who said the U.S. companies represented by the corporate executives “will not be stooges or agents for foreign governments.” Barry also argued that American business leaders have played a positive role in fostering relations between the two countries that advance U.S. policy interests.

“There’s no floor under the downward spiral of the relationship. We urge both countries to meet and de escalate,” he said. “It worked with the Phase One agreement. Give diplomacy a chance.”

Trump’s signing of the Phase One Trade Deal with China in mid-January was welcomed by the business community as a positive step toward improving relations.

But Trump, enraged over what he sees as China’s responsibility for the spread of COVID-19, said last month he wasn’t thinking about pursuing a second round of talks.

The coronavirus recession and the public’s overall dissatisfaction with Trump’s response to the pandemic have dealt the president a severe setback in his hopes for a second term.

As a result, the president has zeroed in on China as part of his reelection campaign, attacking presumptive Democratic presidential nominee Joe Biden as having a history of being too soft on Beijing.

Trump is also backing up his tough talk with action.

The State Department on Wednesday ordered closure of the Chinese consulate in Houston. China retaliated by closing the U.S. consulate in Chengdu.

Those moves follow the administration’s visa restrictions and sanctions over Beijing’s rolling back of Hong Kong’s freedoms and allegations of human rights abuses against Uyghur Muslims.

Additionally, the State Department has formally rejected China’s claims in the South China Sea, raising fears of a military buildup in the strategic shipping waters.

Meanwhile, the Justice Department and FBI are ramping up their criticisms of the Chinese Communist Party.

“We’ve now reached the point where the FBI is opening a new China-related counterintelligence case about every 10 hours,” FBI Director Christopher Wray said in a speech at the Hudson Institute this month.

Chinese officials have dismissed speeches by administration officials as “baseless,” “fact-distorting” and “full of ideological prejudice and a Cold-War mindset” and say Beijing wants to improve relations.

“We are committed to developing a China-US relationship featuring non-conflict, non-confrontation, mutual respect and win-win cooperation,” Chinese Foreign Ministry Spokesperson Wang Wenbin said in a press conference on Friday.

The Trump administration’s attacks on U.S. businesses represent a new frontline in the tensions between Washington and Beijing.

“The major debate now is decoupling. To what extent is it possible, and would it really enable the United States to take harsher punitive measures without inflicting corollary damage on American companies and other stakeholders that have equities in China?” asked Kristine Lee, associate fellow with the Center for a New American Security in its Asia-Pacific Security Program.

If the administration’s goal is for U.S. companies to exit the Chinese market, ramped up rhetoric is starting to have the intended effect by souring the optimism of American businesses operating there.

Barry said a forthcoming report by the U.S-China Business Council will show that companies surveyed have slowed new investment because of concerns about relations between the two countries. They also note that their profits in China have dropped amid the pandemic.

Administration officials would argue that findings like those support their view.

Pompeo, at his remarks in California, said “Beijing is more dependent on us than we are on them.”

The U.S. government’s new approach to China, he added, is to “distrust and verify.”