China has over one billion people and an emerging middle income which makes the demographics of China a country which any company would want to establish roots to grow their business. Many companies have diversified into China and when you listen to executives they have high hopes for their investments in China. Then along came the tariff President who has thrown a monkey wrench into the situation. In an article by Andrea Shalal of Reuters, US companies doing business in China remain profitable by 81% say the escalating trade tensions have affected their business operations. The US-China Business Council which represents 220 large companies notes the tension is rising.
Nearly half the companies surveyed reported lost sales and market shares as a result of tariffs imposed by the US and China. The reason is because of the leadership at the top of the country reflects the companies in the marketplace.
None of the large companies expect a mass exodus, but it was noted when companies first went to China it was a low cost producer, over the years as the economy changed costs have risen and many companies have and continue to examine over locations to find low cost producers. However, they expected to retain and grow their presence in China.
Linking to dividend paying stocks, while the trade deficit grows with China, is tariffs the best solution to build a better solution? If you believe no, then while US companies need to diversify it helps when the government is on the same wavelength. When government policies change, it is hard to move around supply chains, if desired and more importantly no one wants to leave the marketplace. It is relatively hard to sell American owned products to Chinese consumers when the American government is making it harder to do so.
There are more questions than answers, till the next time – to raising questions.