China Counters Trump Trade Threat With Binding Economic Ties

  • Investment blitz at state level may complicate Trump strategy
  • Trade war with China would harm regional U.S. economies

What to Expect From Xi's First Meeting With Trump

If President Donald Trump gets confrontational with Chinese President Xi Jinping over trade at their Mar-a-Lago summit in Florida in April, the Chinese leader will have potential allies in some surprising places -- namely, Austin, Sacramento and Olympia.

The economic ties that bind China to the U.S. are primarily regional and run deep. Now, with a wild card in the White House, the Chinese want even more leverage should bilateral trade relations get hammered. China’s Ministry of Commerce says it’s working to expand various investment agreements with California, Texas, Iowa and other states, deals it estimates were worth $2.5 billion to U.S. and Chinese businesses in 2016 alone.

"‘A good relationship between two nations is based on close connection between their peoples,’" said Sun Jiwen, a spokesman for the ministry, citing an old Chinese saying. "Province-state and intercity economic partnerships provide an important foundation for China-U.S. economic ties."

While the outreach is a continuation of regional ties promoted for several years by Xi, it’s taken on added urgency as Trump’s economic team weighs whether to follow through on campaign-trail promises of tariffs of as much as 45 percent on Chinese goods.

Read More: China Is Reviving the American Heartland, One Low Wage at a Time

Part of the thinking is that making more American friends outside Washington could slow the push for protectionist measures, according to a person involved in the ministry’s campaign who asked not to be identified discussing its internal deliberations.

Binding Ties

If such cooperation flourishes, "it will not be easy for anyone to shake," says He Weiwen, a former ministry official who’s now deputy director of the Beijing-based Center for China and Globalization.

Attention has focused on the massive trade deficit in trade of goods with China -- $347 billion in 2016, almost half of the U.S. total. But China, with its 1.37 billion people, is also among the top three export markets for 33 states. 

Texas oil and gas producers, Michigan automakers and Georgia paper mills would all suffer if China were to impose import restrictions in response to American tariffs. China has also ramped up its investments in the U.S. -- by one estimate, they tripled last year to $45.6 billion -- which helps create the jobs Trump has promised.

Bus Plant

The Fuyao Glass facility in Moraine, Ohio.

Photographer: Ty Wright/Bloomberg

U.S.-China trade ties aren’t solely between Zhongnanhai and the White House. They’re forged in places like Moraine, Ohio, where American workers are employed by Fuyao Glass, a Chinese-owned company that bought part of a shuttered General Motors plant in 2014. Many of China’s cross-border investments are welcomed locally and aren’t the kind of deals that draw scrutiny from the U.S. government, which reviews foreign purchases for national security concerns.

In Lancaster, California, a desert town north of Los Angeles hit hard by the financial crisis, the Republican mayor, R. Rex Parris, in 2008 began courting the Chinese electric vehicle maker BYD Co., which is part-owned by Warren Buffett’s Berkshire Hathaway Inc.

"Saved our city," he says of BYD’s electric bus plant in Lancaster. BYD now employs almost 500 there and anticipates tripling that within three years. "I’m telling people, ‘you’re going to have to not want a job to not have one,’" says Parris, who expects the local unemployment rate to drop to 2 percent.

China’s Ministry of Commerce began formalizing the provincial-state ties in 2012, when Xi visited the U.S. and talked with governors including Iowa’s Terry Branstad, an old friend from a 1980s cultural exchange, about boosting trade opportunities. 

California, Texas, Iowa, Michigan, New York, the state of Washington and the city of Chicago have since signed agreements with the Ministry of Commerce, calling for regular trade visits, business matchmaking and other exchanges. The deals cover 25 Chinese provinces and cities, which sent 22 delegations to the U.S. in 2016 while the U.S. organized 14 trips to China, according to the ministry.

Trade Delegations

Officials and executives from Shanghai made two visits last year to Chicago, which helped convince the popcorn maker Garrett Popcorn to choose the city for its first store in mainland China, according to a statement from Shanghai’s commerce commission. 

In the manufacturing hub of Guangdong, officials plan a slate of cooperative activities this year, among them setting up a regional trade office in Los Angeles, hosting a biotech delegation from Massachusetts and sending representatives to an "Invest in America" summit sponsored by the U.S. Chamber of Commerce, the Guangdong Commerce Department said in a written statement.

Bob Honts, the owner of Texas Lone Star Enterprises LLC in Austin, Texas, accompanied Texas Governor Rick Perry on a trade mission to China in 2014. Honts, whose company raises investment money under the EB-5 visa program, says Chinese immigrants have put $200 million into real estate, oil exploration and other ventures in the state.

Read More: Rich Chinese Rush to Fund U.S. Projects

"To ignore the Chinese is like you’ve got this race car and you’re using three cylinders out of eight," says Honts, a Republican. "You can’t do that. We need to work with China."

Trump hasn’t resolved tension in his administration between hardline advisers like Stephen Bannon, who has called for "economic nationalism," and such moderate voices as Branstad, who’s now slated to become Trump’s ambassador to China.

Few companies have more to lose from a trade war than Boeing, which makes most of its commercial jetliners in Washington state and has collected $60.2 billion from deliveries to China since 2000, according to data compiled by Bloomberg Intelligence. That far outweighs the $800 million to $1 billion that Boeing spends a year on aircraft parts made in the People’s Republic, joint ventures and other operations. 

Boeing Risk

At Boeing Field in Seattle, many of the 737s lined up for testing are Chinese domestic carriers. But if would-be Chinese buyers get caught in the middle of a trade war, "they will simply buy Airbus," says Gary Locke, a former governor of the state who was also ambassador to China under former President Barack Obama.

The state’s director of commerce, Brian Bonlender, is in China this week in preparation for a visit from provincial officials that had been planned for June but now has been pushed back to September and a planned trade mission led by Washington Governor Jay Inslee in August.

Bonlender says his counterparts at the ministry in China have been more "engaged" and "helpful" since Trump’s election -- and seem especially focused on finding Chinese businesses with advanced ideas for investment projects and bringing them to the state’s attention. "We’re very encouraged" by the increased outreach, Bonlender says, adding that it’s likely due in part to the "changing tenor of international engagement" under Trump.

— With assistance by Peter Robison, Miao Han, Julie Johnsson, and Jeff Kearns

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