Will China Boycott Goods from the United States of America?
Aayush Mohanty, Research Associate, VIF

The United States of America (U.S.) and the People’s Republic of China (China), are locked in a fierce trade tussle. Both countries have imposed tariffs which threaten to de-stabilise the integrated global economic order. China has a history of bellicose behaviour, which might not work in its favour against the U.S. this time. China’s usual approach is to boycott goods to put political and economic pressure on countries it wants to show its displeasure to. This tactic of China is not new and has led to economic losses for the countries and companies whose goods were shunned. This approach has been referred to as “boycott diplomacy.”

Financial Times, in one of its survey’s found that 54 per cent of the 2,000 respondents from 300 cities in China are “probably” or “definitely” ready to boycott U.S goods.1 There has been sporadic howling with “China is not scared” trending on Weibo, which is China’s version of Twitter, about boycotting U.S goods. Global Times, the ruling Communist Party’s international mouthpiece, in one of its editorials, did imply a boycott of U.S Goods. “The slogans to boycott American cars and other big commodities may ring through the Chinese internet and get a response”, is what the editorial in the newspaper said.2

The Chinese Government, has implemented this tactic in recent times on the Japanese, Filipinos and the South Koreans for various political reasons. In 2012, Japanese goods were instructed to be avoided because of the dispute over the Senkaku/Diaoyu Islands. The boycott didn’t help China’s case, as both the economies suffered and created a no-win situation as far as commerce and trade were concerned. Joint ventures by the Chinese State-Owned Companies (SOE’s) with Japanese automobile giants like Honda, Toyota and Nissan affected both their businesses.3 Although relations have considerably improved since then, but various Chinese supermarkets still enforce a blanket ban on Japanese products. In early 2017, the Chinese supermarkets banned Japanese food products due to the fears of these being contaminated due to radiation from Fukushima nuclear disaster in 2011, even though the Shanghai Food and Drug Administration had found no proof of these products coming from the alleged contaminated area.4 But, anxious status updates on various social media platform might have done permanent damage to the brand, and in extension, Japanese goods, as one user wrote, “Chinese people must always remind themselves that Japan is always trying to hurt China.”5

In September 2017, with the U.S placing the Terminal High Altitude Area Defense (THAAD) in the Republic of Korea, the relations between South Korea and China, especially on the economic front, has suffered due to Chinese boycott diplomacy. Such was the extent of the losses of South Korean automobile manufacturers due to the ban that the Government intervened and provided these companies with cheap loans and tax deferrals. Its tourism sector also took a hit and new travel packages and temporary visa waivers were introduced to attract tourists. Given the looming threat from Democratic People’s Republic of Korea’s nuclear ballistic missiles, the South Korean Government however, has not budged as far as Chinese demands of removing the missile system are concerned. The ban has been slowly lifted, but it has affected the sales of South Korean products in China.6

U.S. companies, on the other hand, have lesser to worry about compared to their Japanese and Korean counterparts, as most of their businesses operating in China has majority stakes owned by Chinese private and state-owned enterprises. U.S. companies have had their experiences of public anger in China. American fast food chains like KFC and McDonald’s were targeted which led them to sell controlling interests to Chinese companies. While the fast food chains are still operating but presently they own only small amount of their Chinese business, with the rest of it owned by state-owned enterprises and other investors. Coca-Cola also sold its bottling assets to Cofco, a state-owned food processing company. U.S. companies like Apple Inc., Starbucks, and Tesla own their Chinese businesses, with Tesla earning up to two billion USD in earnings.7

The way the trade conflict is intensifying between the two countries, it is yet to be seen as to how China would start retaliating. Some analysts suggest, that once the Chinese citizens are told to boycott U.S. products or companies, they will follow without considering the losses the Chinese enterprises might endure. U.S. products and businesses are highly valued by Chinese citizens, even though the competition from Chinese companies is rising. Many U.S. products are manufactured by Chinese workers, and there are no clear numbers as to how many people work in these factories.8 According to one estimate, around 3.2 million jobs have been outsourced to China between the years 2001-2013.9

According to a recent survey by IHS Markit, a global information provider, China is also losing its positions as the “world’s factory”, due to increasing average monthly wages. The ban, if incited would lead the companies to re-focus their business, and will be favourable towards India, Vietnam, and Mexico which have lower wage costs as per industry standards. 10

One would then expect the Chinese Government to learn from their ban on Japanese goods in 2012. Maybe, that’s why there is no indication from them of boycotting U.S. goods as they might be evaluating their options. China can be selective about its approach towards U.S. goods, but it cannot make any decisions as the economies are integrated with each other and China is heavily dependent on the U.S. market and its technology. While the ban on South Korean and Japanese products did not affect the Chinese economy much, yet any form of ban on U.S. goods will not yield the desired response for the Chinese in the ongoing trade tussle.

References:
  1. Kynge, J. (2018, July 17). Many Chinese consumers ready to boycott US goods in trade war. Retrieved from https://www.ft.com/content/18ced918-89c7-11e8-bf9e-8771d5404543
  2. Wee, S., & Tiantian, Z. (2018, April 19). In a Trade War, China Might Boycott U.S. Goods. That Could Backfire. Retrieved from https://www.nytimes.com/2018/04/19/business/china-trade-us-boycott.html
  3. Gong, J. (2012, September 18). Chinese boycott of Japanese products over Diaoyus makes no sense. Retrieved from https://www.scmp.com/comment/insight-opinion/article/1039983/chinese-boycott-japanese-products-over-diaoyus-makes-no
  4. Feng, E. (2017, March 21). Three China store chains pull Japanese goods in radiation scare. Retrieved from https://www.ft.com/content/076736c8-0d42-11e7-b030-768954394623
  5. Ibid IV.
  6. Jung-a, S. (2017, September 28). South Korea to protect companies hit by Chinese boycott. Retrieved from https://www.ft.com/content/0f534820-a402-11e7-9e4f-7f5e6a7c98a2
  7. Einhorn, B., Curran, E., & Chang, R. (2018, July 16). A Trade War’s Collateral Damage. Bloomberg Businessweek, 12-14.
  8. Ibid II.
  9. Growing Trade Deficit with China has Cost 3.2 Million U.S. Jobs Since 2001. (2014, December 11). Retrieved from https://www.epi.org/press/growing-trade-deficit-with-china-has-cost-3-2-million-u-s-jobs-since-2001/
  10. Staff, C. (2017, January 31). World no longer sees China as a cheap outsourcing destination: Survey. Retrieved from https://www.cnbc.com/2017/01/31/china-no-longer-considered-a-low-cost-sourcing-destination-survey.html

Image Source: http://knowledge.wharton.upenn.edu/article/u-s-china-trade-war-really-future-innovation/

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