In a Trade War, China Might Boycott U.S. Goods. That Could Backfire.

- The New York Times 4/21/18, 7)48 AM

https://nyti.ms/2vyjhBO

BUSINESS DAY

In a Trade War, China Might Boycott U.S.

Goods. That Could Backfire.

By SUI-LEE WEE and ZHANG TIANTIAN APRIL 19, 2018

TAICANG, China — If China calls for a boycott of American goods, Chinese
workers like David Xu could be in trouble.

Mr. Xu is one of thousands of residents of this port town who cash paychecks
from American companies. He works as a technician at a Procter & Gamble
manufacturing and distribution center here, one of the company’s biggest in China.
Across town, Nike has opened a huge distribution center, its largest in Asia.

In all, more than 40 other American companies have set up shop here, making
chemicals, lighters and a broad range of other products for a Chinese market eager
for American goods.

“There is no deep hatred for American companies,” said Mr. Xu, who has
worked for Procter & Gamble for 13 years. “The impact of this trade conflict
shouldn’t be big. After all, American companies bring so many conveniences to the
lives of Chinese people.”

Some Chinese state media outlets have hinted darkly that Beijing could
weaponize its hundreds of millions of shoppers should Washington go through

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In a Trade War, China Might Boycott U.S. Goods. That Could Backfire. - The New York Times 4/21/18, 7)48 AM

with its recent tariff threats and start an all-out trade war. On Weibo, China’s
version of Twitter, there are sporadic calls to boycott Apple’s iPhones. Beijing has
done it before, ably punishing Japanese, South Korean and Philippine products
and companies over political disputes.

A Boycott America plan could be much tougher to pull off.

While competition from Chinese-made smartphones is rising, iPhones remain

popular. Shopping mall developers, eager for the extra cachet, clamor for
Starbucks to open stores. Nike dominates the sportswear market in China.
Chevrolet is one of the country’s most popular brands.

And notably, many of those products are made by Chinese workers. Factories
in China assemble iPhones, stitch up Nike apparel and footwear and make
Chevrolets and Fords. It isn’t clear how many jobs this creates, but the American
Chamber of Commerce in China said that more than one-third of its 800-plus
member companies have more than 1,000 employees in the country.

“China needs the U.S., the U.S. needs China,” said Max Baucus, a former
United States ambassador to China. “We are joined at the hip economically.”

The United States has also supplied much of the investment underpinning
China’s economic growth. Between 1990 and 2017, America pumped more than
$250 billion into China, according to a report by the Rhodium Group and the
National Committee on United States-China Relations.

“The U.S. multinationals have been playing a very critical part of China’s
development story, providing investment, technology, brands,” said Erlend Ek,
trade research manager of China Policy, a Beijing-based advisory firm. “They have
a very good relationship with each other.”

There’s another reason that Beijing may be reluctant to try a boycott:

American multinationals are aiding the Chinese government in some important
projects. IBM and Walmart, for example, are collaborating with the e-commerce
company JD.com and Tsinghua University to improve food safety in China, a

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priority for Beijing.

That isn’t to say that the idea is off the table.

The Global Times, a nationalist tabloid controlled by the People’s Daily, the
Communist Party’s official newspaper, warned that a “people’s war” could be
waged against the United States. On Chinese social media, the phrase “China is not
scared!” has become a popular hashtag, the People’s Daily illustrating it with an
image of Chinese and American boxing gloves.

“The patriotism and collectivism of the Chinese people will likely play a role,”
the newspaper said in an editorial last month. “And the slogans to boycott
American cars and other big commodities may ring through the Chinese internet
and get a response.”

Still, China has other ways to strike back without involving consumers.

China’s proposed retaliatory tariffs would hit companies like Boeing. It can tell
its local governments to stop buying technology from IBM or Microsoft. It can gum
up business plans with regulatory hassles.

Tu Xinquan, the dean of the China Institute for W.T.O. Studies at the
University of International Business and Economics in Beijing, warned that the
possibility of a consumer boycott on American goods “cannot be ruled out.”

“But perhaps once the battle begins, it’s possible that we wouldn’t even need
the people to wage the boycott, because the government’s measures could be
powerful enough,” Mr. Tu said.

Just the prospect of a consumer boycott worries some American business

executives. Despite frustrations that include opaque regulations, the weak rule of
law and demands to hand over technology to Chinese partners or officials, the
allure of being able to access nearly 1.4 billion consumers with the help of a huge
labor force still holds appeal.

Consumers in China can be a potent force. In 2012, Chinese nationalists

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wrecked Japanese stores and car dealerships and boycotted Japanese cars because
of a territorial dispute, hurting sales for years. In 2016, online vendors stopped
selling dried mangoes from the Philippines after a United Nations tribunal ruled in
favor of Manila in another territorial dispute.

Last year, the South Korean conglomerate Lotte was forced to shut down more
than 80 stores in China after the South Korean government provided land for an
American missile defense system that Beijing strongly opposed.

More recently, Chinese nationalists have besieged the social media accounts of
Western companies that labeled Taiwan, a self-governing island that Beijing
considers a breakaway region, and Tibet as countries.

William Zarit, the chairman of the American Chamber of Commerce in China, said
a boycott “is one of the many tools that the Chinese have in their toolbox.”

“Because of the structure of the government and the political power of the
party, they can call for a boycott and get a pretty good response,” Mr. Zarit said.
“So that concerns me.”

Taicang, a 90-minute drive from Shanghai, underscores how interdependent

the two economies are.

Some of the biggest names in corporate America, like Honeywell and Exxon
Mobil, have converged on this city of close to a million people. Its economy is
growing faster than the country’s as a whole. It is richer than Shanghai on a per-
capita basis. Last year, Taicang topped a list of China’s 10 happiest “county-level
cities” for the second year in a row.

In a sprawling factory, Procter & Gamble makes its Head & Shoulders,
Pantene and Vidal Sassoon shampoos and then distributes them along with other
cosmetics and skin care products. When the factory opened, the company said it
would provide 1,500 jobs for Chinese workers. Across town is a 200,000-square-
meter Nike logistics center, which that company has also said would employ 1,500
people.

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In total, 42 American factories are in the Taicang economic development zone,

with a total annual output value of about $4.7 billion, the government of the much
larger city of Suzhou, which administers Taicang, said in February.

The influx of money can be seen in the relative affluence of the Procter &
Gamble employees, most of whom drive Japanese-made cars to work. One female
employee, surnamed Li, said workers were confident that what they made in the
factory would appeal to Chinese consumers, who she said were rational about what
they bought.

Analysts say Beijing is aware of the importance of American companies to

China’s economy. Ernan Cui, a consumer analyst at the research firm Gavekal
Dragonomics, said a boycott could have many victims.

“Due to the integration of the economies, whatever China does to the U.S. will
end up hurting itself,” Ms. Cui said.

Follow Sui-Lee Wee on Twitter: @suilee.

Elsie Chen contributed research.

A version of this article appears in print on April 20, 2018, on Page B1 of the New York edition with the
headline: A Boycott by China? It Could Backfire.

© 2018 The New York Times Company

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