What Trade Friction Means For U.S. Brands In China?

Let me begin with the good news: I remain solidly bullish about business opportunities in China, even for brands from countries where there might be trade quarrels.
We have seen these disputes come and go over the years, and when I served in government I was in the middle of more than one of them. But in the modern history of U.S.-China relations, trade issues have never gotten to the point where they damaged the broader relationship. I see no evidence this time that leaders on either side are incapable of managing this dispute as effectively as they have in the past. Hence there’s a good long-term basis for optimism about U.S. firms doing business in China.
However, for the short-term we have the prospect of bad news for those of us involved in China business: U.S.-China trade friction is heating up. So, what does this mean for U.S. companies selling in China?

First the background. The Trump Administration is considering tariffs on steel and aluminum. While not specifically aimed at China (remember, China accounts only for some 3% of U.S. steel imports), China probably subsidizes steel more than any other major producer and will certainly perceive these measures as aimed at them. And remember the principles of trade negotiations: to acquiesce quietly to this penalty would be to acknowledge guilt as well as to signal indifference toward additional sanctions. So the Chinese leadership is likely to rebuff the sanctions rhetorically and to respond with action of its own. More bad news ahead.

Room for a happy ending

The merits of these initiatives and what help or hindrance might result for the U.S. economy is a separate subject. We also have to acknowledge a realistic possibility that the tough talk from Washington is a signal to Beijing, and that China will offer enough movement to forestall any trade actions. So there is still room for a happy ending. In this essay, however, we want to look at the more likely scenario that tariffs are imposed and trade friction grows. What can U.S. firms do to avoid being swept up in this bad news? Five quick tips.

One, keep moving ahead with your business plans. No one likes partners who panic — not customers, suppliers, nor the Chinese government. Continue operations as usual and keep on with your plans for growth. To falter or freeze in the face of bad news risks the perception you are contributing to the problem. The U.S. and China have had many ups and downs in their relationship, but over the past 30 years trade problems have been short-term.

Two, your leadership needs to understand the China market will tend to have more volatility than the developed markets. Beyond the trade issues, commercial questions from consumer preferences to the competitive map are still being defined. China is not simply a large Ohio. It is a market of extraordinary possibilities and considerable fluctuation.

Three, consistent with the volatility point, be mindful of your fixed costs. You might want to have a lighter asset footprint in China compared to other markets, leasing facilities and equipment rather than purchasing. No doubt e-commerce becomes an even more attractive channel in these situations.

Four, bolster your communications and outreach activity. Your corporate web page explains your values and mission, but is it in the Chinese language? If you have a college internship program in the U.S., do you also have one in China? Pay attention to being a good corporate citizen and to ensuring Chinese constituencies understand what you do.
Five, don’t forget internal constituencies. It might seem that everyone in your company is contacting you about what these new sanctions mean — why not get in front of the issue? Suggest an internal email or notice to your colleagues and collaborators to let them know that despite the public friction, day-to-day business continues to move ahead.
The bottom line: No market in the world offers the possibilities that China offers, and that can carry with it a certain amount of challenges as well. It will require active management to surmount those challenges. The steps outlined above are a nice start. And they are not bad steps to take even if the trade friction fades or if your brand is not from the U.S.