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U.S. companies fear Trump could cost them business in China

ATLANTA, Georgia (From news reports) -- Thousands of southern yellow pine trees from across Georgia are cut down every year to create pulp and paperboard that's shipped in gigantic rolls from the Port of Savannah to China. The materials are used to make diapers, cereal boxes, cotton swabs and paper towels, even the coating on hot dogs and LED screens on iPhones, everyday items that are both sold in China and exported to the United States.

U.S. businesses -- from paper company Georgia-Pacific and consumer goods giant Proctor & Gamble to entertainment powerhouse Walt Disney Company -- have long made money in China.

But since President Donald Trump came into office blasting China for what he calls unfair trade practices, U.S. businesses have worried that his rhetoric could ignite a trade war -- a fight that could end up cutting into U.S. profits or even shuttering the Chinese marked and driving up costs for American consumers.

"There's much at stake for both countries and both governments," said John Ling, managing director-investment of the Georgia Department of Economic Development who serves as president of the Council of American States in China. "I don't think it's in anyone's interest to destroy that."

Trade will be at the top of the list of issues Trump will discuss with Chinese President Xi Jinping in Beijing on Thursday as part of a two-day state visit. China is the third-largest destination for American goods and services, purchasing $165 billion in 2015 or 7.3 percent of all U.S. exports. By 2030, U.S. exports to China are expected to increase to $520 billion.

And according to a study for the U.S.-China Business Council by Oxford Economics, U.S. investment in China and Chinese investment in the United States resulted in 2.6 million U.S. jobs and about $216 billion of gross domestic product.

"The China market is important to the U.S. economy and will continue to grow in the years ahead," said John Frisbie, president of the US-China Business Council. "The question is whether U.S. companies will be able to access that growth as fully as they should, given the market access barriers and level playing field concerns that continue to frustrate many American manufacturers and service providers."

Trump says China has not given U.S. companies the same access to the Chinese market that Chinese companies, some controlled by the government, have to the U.S. market. He has toned down some of the threats he made during the 2016 presidential campaign -- for example, he didn't name China a currency manipulator as he pledged to do on his first day in office -- but he hasn't ruled out imposing a 45 percent tariff on imports.

William Zarit, chairman of American Chamber of Commerce in China, said he supports the administration pushing long-standing issues with China but worries what will happen if China doesn't make any changes. "What we're concerned about is if we don't get this...reciprocal agreement from our Chinese friends, that the U.S. will take measures that are trade limiting," he said in an interview at the group's Beijing office.

Trump has many options. The U.S. could increase interest payments on foreign capital, make it difficult to invest in certain industries, call for an investigation on the grounds of national security or unfair trade practices, appeal for reviews of various activities by the World Trade Organization or even propose a review and restructuring of the WTO itself. China would quickly retaliate.

Already, the administration launched a so-called 301 investigation -- named after a section of 1974 trade law -- into Chinese intellectual property theft that left open the door to increased tariffs on Chinese products. The inquiry surprised and angered the Chinese. A state-run newspaper recently warned the decision would "poison the overall US-China relationship."

Nearly 30 leaders of U.S. companies, including Boeing, Cheniere Energy and DowDuPont, traveled to China at the invitation of Commerce Secretary Wilbur Ross as part of an event designed to coincide with Trump's visit.

Trump and Xi are expected to announce millions of dollars in economic development deals but real policy changes may elude them after years of inaction.

"The sense I get is China's willing to sign trade deals all day long, as long it stays away from industrial policy and the sort of market access issues that they're seeking to avoid, " said Christopher Johnson, a senior China analyst at the CIA who now serves as a senior adviser to the Center for Strategic and International Studies.

In 2016, Georgia sent $2.6 billion in exports to China, according to the U.S.-China Business Council. The top export for the state -- two-thirds of which is forestland --was pulp and paperboard mill products. About a dozen of Georgia's mills are working on exports to China, according to Andres Villegas, president & CEO of the Georgia Forestry Association.

Georgia-Pacific, based in Atlanta, exports pulp, containerboard, bleached board and recycled fiber to China, where it has offices in Hong Kong and Shanghai. It has been exporting to China for more than two decades.

"China is important market for fiber exports -- wood pulp and recovered paper -- and paperboard packaging," said Jake Handelsman, senior director, international trade for the American Forest & Paper Association. "Overall, we want to ensure that Chinese markets remain open to our industry's exports."

About a dozen other states, including California, Missouri and South Carolina, have trade offices in China, most in Shanghai.

In China, U.S. companies face frequent and inconsistent regulations, delays getting their products where they need to be sent and the theft of intellectual property, according to administration and business officials.

National Security Adviser H.R. McMaster said Trump is pushing for "fair and reciprocal trade" by ensuring governments do not unfairly subsidize their industries, discriminate against foreign business or restrict foreign investment.

"It's critical for the president to stand up vigorously for America's interests, but it's important to remember that our economic interests are not neatly defined by a bilateral trade deficit figure or advanced by threatening tariffs on Chinese goods," said Jake Colvin, vice president for Global Trade, National Foreign Trade Council. "The economic relationship with China is complex and oftentimes frustrating, but also important to many American businesses."

****

Jim Thompson is back again...with a new book on a taboo subject: the personalities in the pulp & paper industry. Jim has written in the past on many subjects based on his four plus decades in the worldwide pulp and paper industry. This new book is packed full of information valuable to the senior member of the industry as well as the recent entrant. A must for every pulp and paper library.


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