As the Sino-American trade war heats up, Chinese partisans are quick to point out that in terms of revenue, American companies are far more dependent on China the massive $375 billion bilateral trade deficit might suggest. Roughly a dozen Fortune 500 companies rely on China for more than half their revenue, and the Chinese argue that neither the Japanese nor the Koreans were this open to foreign companies at the same stages in their developments.
Deutsche Bank took up this line of argument this week, issuing a research report that highlighted $223 billion in sales done by Chinese subsidiaries of U.S.-based companies in 2015. According to the note,“General Motors sold more cars in China than in US last year. There are 310mn active iPhones in China, more than double the number in the US. These cars and phones did not show up as US exports to China, as they were made and sold in China. The US business interests in China are much larger than what the trade data shows. The looming trade war puts these interests at risk.”
While it’s helpful to know just how important China is to many U.S.-based multinational companies, it’s mistaken to assume that, from the perspective of the American voter, this will have any effect on the underlying politics of the trade war. Just because Chinese consumers are buying products with American logos on them, doesn’t meant that the benefits of these purchases accrue to the median American.
In fact, these figures illustrate what is unfair about Chinese trade laws more than they do Chinese openness to trade. Take for instance General Motors, which sold 4 million cars in China last year. The company does the vast majority of those sales through 10 joint ventures the company has with Chinese partner, like SAIC, the Chinese company with which it builds the popular Baojun brand.
But GM owns just 44 percent of Baojun, meaning the big winner of the joint venture is SAIC, which gets to rapidly increase its own expertise and technology through the venture. GM gets a toehold in the Chinese market in return, but the gains to that remain theoretical and unrealized. Despite China being a larger source of car sales and a large source of investment than any other country, just a fraction of the company’s profits come from there.
“Other foreign auto makers are consistently taken aback by GM’s apparently generous technology sharing” when it comes to Baojun, said Michael Dunne, a former GM executive told the Wall Street Journal in December. “The open approach has engendered considerable goodwill but it also leaves GM vulnerable to the whims of its powerful Chinese partner.”
GM makes most of its money selling SUVs and trucks to Americans, but wants to assure its place as a major global auto company of the future by establishing its presence in an economy that will be the major source of auto demand for years to come. To do that, it has no choice but to allow Chinese companies to appropriate its technology and know-how, as well as rely on Chinese labor, as a result of the steep 25% tariff that automakers who assemble their products abroad face in China.
So Deutsche Bank is correct that a Sino-American trade war puts the long-term interests of GM and McDonalds at risk. But just because a handful of major American companies have bet big on China, doesn’t mean that China is therefore an open economy, or that the presence of American companies in China does anything to benefit the average American.
Meanwhile, there is no single issue that the President has staked his reputation on like the trade deficit with China. Though trade balances are not the only measures we should use to measure the effects of government policy, China’s large trade surplus does reflect the ways in which it suppresses domestic consumption and subsidizes domestic production in order to boost employment and reinforce the power of its state-owned enterprises.
Whether or not the Trump Administration will have any success weaning China off these unsustainable policies remains to be seen. But it’s doubtful that the fate of GM and McDonalds is going to rally Americans to oppose the trade war.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.