In our contemporary world, economics is both the means and end to a war that doesn’t require titans to trade punches or fire guns to safeguard what we call “national interest”
Instead, the contest unfolds in chilly boardrooms and inked deals, as the sharpest minds battle it out to preserve their economic leverage. In the modern world, the arms race is far from tangible. Yet, as the major powers stock up their arsenals of economic ammunition, the trade war between the titans, US and China, seem more threatening than ever before.
Recently, after US President Donald Trump moved to blacklist Chinese smartphone major Huawei Technologies Co. and hinted at similar measures against other Chinese tech players on the US soil, conjecture about a possible Chinese retaliation began to gain ground.
Does the most populated country in the world really hold the keys to Corporate America’s success?
Considering how much of their business American corporates owe to the burgeoning Chinese population of consumers, it definitely does seem likely. China is no stranger to the tactics of economic warfare, having successfully affected the South Korean economy in 2017 after Seoul decided to deploy a missile shield. In the aftermath of the Chinese payback, Hyundai Motor Co. suffered from a serious decline in sales, and companies like Lotte Shopping Co. had to suddenly contend with the loss of a major market. The South Korean cosmetic industry also faltered, as the number of Chinese tourists in the country fell rapidly. If China were to replicate such an attack on the US corporates, it would definitely deal a major blow to America’s dream run.
As the global economy slows down, the American business majors are increasingly reliant on the Asian markets, with their fast-paced population growth and rising demands for high-value consumer products. With such a backdrop in mind, Chinese President Xi Jinping’s perceived aversion to a truce with the United States on the trade front, seems oddly telling. Does China really have more cards up its sleeves than US previously estimated? I think it is a definite possibility.
Of all the companies that are likely to take a hit in the aftermath of the Huawei ban, tech major Apple seems to be on the front lines. After all, it is a smartphone expert much like Huawei and the wave of local support for the latter might derail Apple’s expansion plans in China. When Beijing’s tensions with Seoul had mounted, Chinese consumers had almost spontaneously boycotted products from South Korea. If such an effect is repeated in the case of Apple’s iPhones, the tech behemoth’s sales will take a major hit. Considering Apple is already experiencing a 15% global, year-on-year fall on iPhone sales as of the first quarter of fiscal year 2019, it really cannot afford to lose the Chinese market.
In fact, the effects have already begun to show up, as local consumers veer towards smartphones manufactured and marketed by Huawei over iPhones. Apple, which also manufactures its iPhones in China, is directly in the line of a Chinese backlash that can knock off around 3 to 5 percent of its sales in the country. Considering that almost a fifth of Apple’s overall revenue comes from China, an escalation of trade war tensions could potentially send its stock prices tumbling.
Another major US brand that might see its Chinese foundations being shaken in the wake of the trade war, is Nike Inc. The sportswear major, which makes a sizeable chunk of its total revenue from China, also stands to fare quite poorly as Chinese consumers turn away from Nike products to locally produced sports products. Even though Andrew Campion, the Chief Financial Officer of Nike, has reportedly stated that the company has little to fear in China, the fault lines are becoming increasingly apparent.
Local consumers have a lot of options before them, and a strongly hostile anti-American sentiment could easily catapult Nike’s local competitors to a situation of high profitability. As per Bloomberg Intelligence reports, Nike might soon be bypassed as the second largest sports product seller of China, as the country’s homegrown brand Anta takes precedence. With all these aspects in mind, Nike’s prospects in China definitely does not seem all too bright.
The tremors of the US-China trade war are also being felt across the contours of the hotel industry, as US biggies like Marriott begin to contend with growing local pressures. However, in the case of Marriott particularly, the risks of a Chinese backlash is tempered by the fact that the company employs mostly Chinese citizens and locals, and runs its operations in adherence to local customs and government policies. This could give it a certain degree of immunity even in the face of mounting Chinese hostility. Yet, reports suggesting the Jinping’s government had something to do with orchestrating the major corporate hack that affected Marriott in November, seem to give credence to the idea of the hotelier getting caught in the crossfire.
Other industries seeing impacts of the fast-intensifying trade war include the automobile and pharmaceutical sectors. As the Chinese consumers have begun to tighten their purse strings in response to US companies trying to woo them, firms such as General Motors have reported sliding revenues from this expanding market. Both General Motors and Ford stand to have their Chinese revenues halved soon if Trump and Jinping do not hit a break in the trade war. The pharma industry also seems poised on the brink of a devastating decline, as the government of China gives incentives and encouragement to local firms for producing generic life saving drugs.
Even in the entertainment sector, Chinese consumers could deal a significant blow to American companies like Disney and Marvel, whose movies and fan merch are favourites of the Chinese youth. In the absence of state support and with the upsurge of films that cash on Chinese nationalistic sentiments, these companies also stand to suffer.
Who stands to benefit from the ongoing repercussions?
As the situation stands now, Xi Jinping seems to have his sights set on the US Presidential Elections of 2020. It is unlikely that China will take drastic measures to clip the wings of corporate America right away, when it still seems possible that a more moderate leader might come in and broker a truce between US and China. After all, China itself stands to suffer a slowing down in its economy if the trade war continues and a symbiotic exchange could benefit both the parties.
However, even in such a situation, China has a valuable card up its sleeve, one that has so far received only negligible attention in global media. As Deng Xiaoping had said so prophetically years ago, “Saudi Arabia has oil, China has rare earths”. China’s vast reserves of rare earth elements like Neodymium, Cerium, Europium and Terbium are now becoming increasingly relevant in creating high-tech products. As a result, companies like Apple, Tesla and Boeing have a certain degree of dependence on Chinese resources, to create everything from sophisticated cars, to precision-guided missiles.
Even advanced smartphone screens these days have traces of rare earth elements in them and as a key producer of these resources, China holds the keys to America’s technological success as well. Considering how deeply intertwined America’s tech and corporate interests are, China’s control over rare earth elements could effectively pose a credible threat to America’s corporate superiority.
Clearly, as invisible battle lines are drawn between the two major powers, America’s capitalist dream seems increasingly under threat. Given that the US is a democracy with those in power reliant on continuing corporate supremacy and profitability, China has a massive advantage. With a political structure that is far less democratic, Chinese governments have less of an obligation to respond to the immediate needs of their populace. This imbues their foreign and economic policy with a certain upper hand that could cost the American corporates quite heavily. Will China now unleash its wrath on American corporate houses and strike at the very roots of their profit model in the Asia Pacific? Only time will tell us that. Yet, it is poignant enough to note that it is capable of doing so.