On both sides, economic hostility has been driven recently by accusations, counter-accusations, and ongoing investigations into China's practice of coercing American companies to hand over advanced technology and other intellectual property as a price for doing business. The U.S. Trade Representative's ongoing investigation into these shenanigans has illuminated the ways China's regulators railroad U.S. corporations. During open hearings in October, voice after voice recounted examples of American firms essentially forced into disadvantageous commercial arrangements with Chinese partners – the localization of customer data, software source codes, core intellectual property rights – because Chinese law often requires such provisions before regulators will grant operating rights.
Why do major American companies allow themselves to be perennially manipulated by the Chinese government into forgoing their hard-earned innovations? Because Beijing is masterful at playing one company against the other, and Chinese leaders know multinational corporations cannot resist the lure of China's consumers. Thus, companies compromise to gain access, for fear if they don't play ball someone else will.
China's government will only change its tune if all the private players team up to reject unfair market-access offers – and withhold their investments en masse. But U.S. firms are legally prohibited from and instinctively disinclined to collaborate with one another in their own defense. Private sector players will almost always seek to steal a march on their competitors, particularly if they can do so in such a way that blocks out rivals.
Back at home in the U.S., multinational corporations are concerned about the U.S. government's ability to address these and other challenges. The Trump administration and many in Congress appear increasingly determined to do something to change the status quo. But Washington pushing too hard could worsen the situation by triggering Chinese retaliation.
Adding to the complications, American multinationals also find themselves dealing with an administration focused more on investments inside the U.S. and less on supporting U.S. industry abroad. For example, negotiations over a U.S.-China Bilateral Investment Treaty (BIT) have gone moribund, despite a U.S.-China BIT arguably ranking as corporate America's top policy priority in the relationship. Moreover, many multinational corporations thought the Trans-Pacific Partnership would be a strong bulwark to help normalize China's trade and investment practices.
Despite the uncertainty on the U.S. side, America has more opportunity to push back on China's leaders than it did a decade ago. The days of China's double-digit growth figures are gone, permanently, making the risk of heightened tensions less dangerous for business than in the past. China is no longer a wonderland of easy growth and easy profits, so some leverage has shifted back to American negotiators. Additionally, China's investments abroad have skyrocketed – particularly in the U.S. – creating a mutual incentive for keeping doors open.
This week in Beijing, some pushing from the Trump side could help in cajoling China into improving market-access conditions for foreign companies. However, if threats and heated rhetoric turn into painful protectionist U.S. policies down the road, "face issues" for China would likely come into play and lead Beijing to institute retaliatory actions – step one towards a trade war. It behooves American business to ensure its voice is heard now and heard clearly, without the mixed messages of the past. In this way, the populist proposals kicking around Washington can be handled moderately, to help bring about positive change rather than a downward spiral.
Commentary by Steve Odland, CEO of the Committee for Economic Development of The Conference Board, and former CEO of Office Depot and AutoZone; and Ethan Cramer-Flood, Associate Director of The Conference Board's China Center.
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