Tensions between China and the U.S. are running high — and that's leaving American companies having to carefully navigate their approach to a key player in the global economy.
The uncertainty U.S. businesses are facing is getting increased attention this week as Commerce Secretary Gina Raimondo is set to become the latest senior official to visit Asia's largest economy.
Raimondo's trip, which is scheduled from Sunday to Wednesday, comes at a tricky moment. On top of the trade tensions with the U.S., China is facing a slowing economy.
Here's a look at how American companies are currently approaching China.
Tensions are having a 'chilling' effect
Even before tensions increased between the two countries, U.S. companies' perceptions of China had already taken a hit.
The Trump administration had imposed a number of tariffs on China. And then China implemented a "zero-COVID" policy that was disorienting and disruptive for global companies. Travel within, and to and from, China was all but impossible, and lockdowns disrupted manufacturing and trade.
Companies like Apple, for example, faced delayed shipments as lockdowns disrupted their operations in China.
President Xi Jinping ended those restrictions earlier this year, but their legacy continues to loom large, according to Anna Ashton, an expert on U.S.-China relations at Eurasia Group.
"I think that the Chinese government likely underestimated the negative effect that had on foreign businesses' perceptions of the China market," she says.
The emergence of China from the pandemic came as tensions with the U.S. over issues ranging from Taiwan to intellectual property to labor practices have worsened.
They've led to a series of tit-for-tat actions between the two countries.
The U.S. banned the export of certain microchips to China. Then China imposed restrictions on two rare elements used in high-tech manufacturing.
Most recently, President Biden, citing national security concerns, signed an executive order that will make it more difficult for U.S. firms to invest in certain Chinese companies. They'll be prohibited from investing in artificial intelligence and quantum computing — technologies that could be used by the military.
That announcement came a few weeks after China adopted an expanded counterespionage law that leaves some U.S. companies vulnerable — especially those that collect and retain a lot of customer data.
Recently, the U.S. consulting firm Bain & Co. was targeted. In a statement to NPR, the company said Chinese officials questioned staff in its offices in Shanghai.
According to Ashton, these actions have been "limited and targeted," but they have a chilling effect on U.S. businesses broadly. Companies worry about the ambiguity of the law, and whether they could be subject to searches and questioning by government officials.
"There's just the uncertainty around what kind of activity might attract the wrong kind of scrutiny, and get you into trouble."
Certain sectors are being impacted more than others
Even before President Biden signed that executive order, U.S. investors steered away from certain parts of China's economy, especially in technology and sectors such as AI and chips that have potential national security implications.
U.S. companies have been trying to ascertain what sectors and products are "safe." But Ashton says there is still a lot of ambiguity.
And even traditional investments in China are being reconsidered.
U.S. companies have long based a substantial part of their production in China for everything from iPhones to sneakers.
The COVID-19 pandemic led many companies to reevaluate supply chains, and some of them have sought to move offices and manufacturing facilities elsewhere. Apple has reportedly encouraged companies that manufacture parts for iPhones to shift operations in other countries, including India and Vietnam.
"Companies are rethinking their strategy, determining whether some elements of their business is best conducted outside of China," says Lester Ross, a Beijing-based partner at the law firm Wilmer Hale.
Still, many companies plan, or at least hope, to stay put — given how much they have invested in manufacturing facilities already, and the time it takes to adjust supply chains.
According to a recent survey by the American Chamber of Commerce in China, 74% of companies said they "are not considering relocating manufacturing or sourcing outside of China."
And that showcases another reality: Despite the toughening rhetoric, the two countries still need each other.
China's economy is raising concerns — and opportunities
American businesses in China are being complicated by the worsening economy in the Asian country, which is facing a myriad of challenges including slowing consumer demand, a troubled property sector and declining exports.
But China's slowing economy also represents an opportunity as the country courts more investments.
In recent months, top U.S. executives have visited China, including Tesla's Elon Musk and Apple's Tim Cook. JPMorgan Chase CEO Jamie Dimon traveled to Shanghai earlier this year for a China-focused conference.
And senior government officials are also visiting China despite the tough rhetoric from the two sides.
Raimondo's visit follows recent ones by Treasury Secretary Janet Yellen, Climate Envoy John Kerry and Secretary of State Antony Blinken.
According to Wilmer Hale's Ross, these trips are critical.
"It's important for the Chinese authorities to have a direct audience with leading foreign businesspeople, leading foreign investors, and be able to explain to them directly how much China welcomes their further participation and expansion in the Chinese economy," he says.
China is also still an appealing market for the U.S.
China is not only a key global manufacturer, it's also increasingly a key market for American goods.
Gabriela Santos, a global strategist at J.P. Morgan Asset Management who specializes in China, argues the size and potential of the country's middle class can't be ignored. And it is likely to grow larger.
"We could see another 300 million people join the middle class over the next decade," she says.
According to Santos, there's been a seismic shift.
"It's no longer this idea of 'Made in China' for the rest of the world," she says. "It's 'Made in China' for China."
U.S. companies, including Procter & Gamble, Disney, and Starbucks, say they see an opportunity to sell more products to Chinese consumers.
SCOTT SIMON, HOST:
Another high-ranking U.S. official is traveling to China at a time when tensions between the world's two largest economies are extremely high. The trip that starts Sunday, Commerce Secretary Gina Raimondo plans to meet with Chinese government officials. U.S. executives and investors are paying close attention. NPR's David Gura joins us. David, thanks for being with us.
DAVID GURA, BYLINE: Thanks for having me, Scott.
SIMON: What do U.S. business leaders hope to see as the commerce secretary travels to Beijing and Shanghai?
GURA: So this relationship really started to sour during the last administration when the Trump White House imposed a raft of new trade restrictions. And President Biden has kept those tariffs in place, and things have only gotten frostier as China has taken a more aggressive tack. The companies have been trying to navigate this and what they want, first and foremost, Scott, is more clarity about Washington's approach. They also want to know more about what the rules of the road are for businesses doing business in China. You know, right now, there's a lot of uncertainty and, frankly, a lot more risk. Business leaders hope Gina Raimondo will make good on something she promised them in a big speech on the White House's approach to China last year.
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GINA RAIMONDO: It is on us in the government to provide clear guidance, consistent guidance, to be constantly in touch with you, to be transparent, to take your feedback and to minimize the disruptive change.
GURA: So this is a chance for the secretary to do that at a time, Scott, when there's a lot of hawkish rhetoric from Congress suggesting the administration should take a harder line on China.
SIMON: David, what are some of the challenges that U.S. businesses have to contend with in China?
GURA: Well, the pandemic was so disorienting and disruptive for U.S. companies doing business in China. The country's zero-COVID policy made travel all but impossible and led to these unpredictable lockdowns that disrupted manufacturing and disrupted trade. Beyond that, we've seen these tit-for-tat protectionist policies. The U.S. banned the export of certain microchips to China. Then China imposed restrictions on two rare elements that are used in high-tech manufacturing. All that's had a chilling effect. But the White House continues to argue the relationship between the U.S. and China is still incredibly important.
SIMON: How do companies and investors navigate all the uncertainty?
GURA: Well, the pandemic prompted many companies to take another look at supply chains. Apple and Google have reportedly encouraged suppliers to shift manufacturing elsewhere. And while that's continuing, according to a recent survey of U.S. companies doing business in China, almost three-quarters of them say they intend to stay put. And that showcases another reality. Despite the toughening rhetoric, these two countries still need each other, which is a big reason why we've seen so many high-level trips recently. Raimondo's trip comes after the secretary of state, the treasury secretary and the U.S. climate envoy have traveled to China. And executives are also making the pilgrimage, including Elon Musk and Tim Cook. Musk met with several high-ranking officials, and Cook met with Raimondo's counterpart.
SIMON: David, how much does China really need the U.S. right now?
GURA: Well, China's economic recovery post-pandemic has not been as strong as many economists expected. And we've seen a lot of warning signs lately about the health of the Chinese economy. This country has a huge middle class, and it's forecast to grow by 300 million over the next decade. And there's also a transition underway, according to Gabriela Santos, a global strategist at J.P. Morgan Asset Management. It's a fundamental change, she says, in the way U.S. companies approach China.
GABRIELA SANTOS: They want to be there to sell their goods and services to Chinese consumers. It's no longer this idea of made in China for the rest of the world. It's made in China for China.
GURA: Hundreds of public companies in the U.S. have just updated investors on how they're performed recently, and many of them noted how much opportunity there is to sell all kinds of things - cosmetics, athleisure, exercise equipment - to this growing middle class. And one of Raimondo's goals is to make sure U.S. companies have access to that market.
SIMON: NPR's David Gura, thanks so much.
GURA: Thank you.
(SOUNDBITE OF JUNGLE BY NIGHT'S "HANGMAT") Transcript provided by NPR, Copyright NPR.