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Trade war dims outlook for U.S. business operations in China - survey

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Trade war dims outlook for U.S. business operations in China - survey
FILE PHOTO: U.S. dollar and China yuan notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White   -   Copyright  Thomas White(Reuters)
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By Andrea Shalal

WASHINGTON (Reuters) – U.S. companies doing business in China remain profitable, but 81% say escalating trade tensions between the world’s two largest economies have affected their business operations, a new survey released Thursday by the US-China Business Council found.

That marks an eight percentage-point increase from 2018, said the group, which represents more than 220 U.S. companies ranging from Boeing Co <BA.N> to Archer Daniels Midland <ADM.N> and Hewlett Packard <HPE.N>.

The next round of U.S. and Chinese tariffs will take effect on Sunday in a trade war that has roiled financial markets and threatens to push the global economy into recession.

Nearly half the U.S. companies surveyed reported having lost sales and market share, mainly as a result of tariffs imposed by both the United States and China, and many cited concerns about their ability to compete given advantages offered to domestic firms.

U.S. companies say they are also losing sales because their Chinese customers increasingly view U.S. companies as unreliable business partners given the volatility of the bilateral commercial relationship, the survey showed.

Nearly 40% of those surveyed said they lost sales because of Chinese partners’ concerns about doing business with U.S. companies, a seven-fold increase over 2018.

The survey showed that China remained among the top five global markets for U.S. companies because of its comparative size, and 97% of member companies reported increased profitability in China in 2019 despite the trade dispute.

A slight majority of the companies expect an increase in revenue in 2020, a drop of 26% from the previous year, reflecting uncertainty over tariffs, the trade conflict and a deteriorating market environment, the group said.

“While no mass exodus from China is expected, continued tensions in the U.S.-China relationship, an unlevel playing field, and simmering retaliatory actions by Chinese authorities against American companies are creating an increasingly uncertain commercial environment,” it said.

Rising costs in China had already prompted some U.S. companies with operations in China to begin looking for suppliers elsewhere before the trade war broke out in 2018, but experts say tit-for-tat tariffs have accelerated those moves.

Last week, U.S. President Donald Trump also demanded U.S. companies find alternatives to China, although he has since walked back those remarks somewhat.

The survey, taken in June before those remarks by Trump, showed a majority of U.S. companies remained committed to the China markets and few were divesting existing operations.

However it showed that nearly 30% of the companies reported slowed, delayed or cancelled investments in the United States or China because of uncertainty created by the heightened tensions, twice the number reported in 2018.

The council noted that 95% of member companies invest in China to access the domestic market, while less than a quarter invest there to export regionally or to the United States.

(Reporting by Andrea Shalal; Editing by Steve Orlofsky)

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