America’s China Agenda at Risk
The true cost of President Barack Obama’s decision to slap a 35 percent tariff on tires imported from China will begin to be felt this week. So far, China’s response to the protectionist measure appears to be limited to a “tit for tat” action against chicken and auto parts exports from the United States. With respect to China, though, expect the total response to be much greater–and more subtle.
As I recount in my book, Managing the Dragon, I have been involved in a number of scrapes over the years with Chinese partners. This is not unusual, as anyone who has operated in the country knows. Anytime you bring two cultures together, in this case a Western culture with one from China, rough spots are bound to surface. I was always struck, however, by the way in which a dispute in one area with a partner, customer or colleague affects all aspects of the relationship in China. In the United States, we’re used to “compartmentalizing,” not letting a disagreement in one area affect the overall relationship. In China it’s different. You either have a good relationship or you don’t.
When a relationship sours in China, strange and peculiar things begin to happen. For example, when we came into dispute with a Chinese partner, the routine airport pickup by the drivers from the joint venture just didn’t happen. Or, an agreement by the Chinese partner to distribute dividends was suddenly reversed. Or, the reception for the “expert” sent from headquarters to conduct training was anything but warm.
Of course, the explanations given for these actions, or non-actions, seemed reasonable on the surface and unrelated to the dispute at hand. “All of the company’s drivers were tied up transporting customers.” Or, new investment opportunities for the company caused the Chinese partner to reverse its decision to distribute dividends. Or, the so-called “expert” from headquarters simply wasn’t “qualified.” As if by magic, I learned over the years that all of these issues went away once the underlying dispute we had with the partner was resolved.
It will be no different in this case. Make no mistake about it, President Obama’s decision on tariffs for tires strikes at the heart of China’s economic well-being, and the entire relationship with the United States is likely to become frosty. This week, President Obama will be meeting Hu Jintao at the G-20 Summit in Pittsburgh, and later in November, he’ll be traveling to Beijing. In these meetings, President Obama will be asking China for help with Iran and North Korea, support for his environmental agenda in Copenhagen, a promise on China’s part to promote free trade and to avoid protectionist measures, and above all, for China to continue to buy America’s bonds.
My expectation is that President Obama will come away empty-handed. Obama’s own actions on trade give the Chinese sufficient cause to take their own protectionist measures and to resist American calls to revalue the yuan, for example; China has an active trade relationship with Iran that it doesn’t want to disturb; the country has no incentive to be involved in a dispute with North Korea that will result in millions of refugees entering China; and China is in a developmental stage, so why should it agree to any limits on industrial development caused by caps on carbon emissions? And as for buying those U.S. bonds, the dollar is already down by 5 percent this year against the Euro, and the heavy borrowing to finance the budget deficit is only beginning. President Obama is likely to receive an unexpected lecture on economics and fiscal policy from the Chinese when he shows up in Beijing.
Under the best of circumstances, getting China’s support in one or more of these areas would be difficult. With the tire tariffs in place, forget it.
Unfortunately, the fallout from the Administration’s action on trade will undoubtedly go well beyond government to government relations. U.S. executives in China are likely to find it more difficult to operate in the months ahead. If visas become harder to come by, expected approvals take longer to materialize, or Chinese partners become more difficult to deal with, chalk it up to tires.