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American companies in China brace for more trade-war pain

Days before President Donald Trump is expected to impose tariffs on an additional US$200 billion in Chinese goods, some American businesses here are reluctantly drafting plans for a new era of hindered trade between the world's two largest economies.

[BEIJING] Days before President Donald Trump is expected to impose tariffs on an additional US$200 billion in Chinese goods, some American businesses here are reluctantly drafting plans for a new era of hindered trade between the world's two largest economies.

The levies that Washington fired at Beijing this summer - and the Asian nation's swipes back in equal measure - have stung bottom lines and provoked grumbling from industry groups. But Mr Trump's latest threat, which could take effect as early as Sept 6, would amplify the commercial battle fourfold.

Analysts say US firms caught in the crosshairs are now taking steps that executives tend to dread: They are preparing to reshape supply chains and raise prices.

"These are not the kinds of decisions companies want to undertake," said Jake Parker, vice president of China operations at the US-China Business Council, which represents about 200 firms, including PepsiCo, Apple and General Motors.

Since the majority of televisions sold on American soil are manufactured in China, for instance, Mr Trump's 10 per cent levies slated for TV parts could inflate bills for shoppers back home. Duties on down feathers and fabric, which also pour into the United States from the Asian nation, could lift the cost of bedding that deal hunters might seek at Walmart or Target.

Mr Trump, who aims to force Beijing to end trade practices he considers predatory, has shown no sign of relenting as the US$200 billion deadline looms.

Chinese officials have vowed to retaliate against the move, which would slap levies of up to 25 per cent on many consumer goods, including clothing, furniture, refrigerators and toilet paper - and effectively place higher taxes on nearly half the goods China ships to the United States.

"People who still believe China will submit to intimidation, threats and groundless accusations should wake up," Hua Chunying, a spokeswoman for the Ministry of Foreign Affairs, said at a press briefing last week.

Economists at Tsinghua University in Beijing estimated in a recent study that the heightened trade war could shear about a third of a percentage point off the country's growth, which is projected at a hardy 6.6 per cent for 2018.

Wu Baiyi, director of the Institute of American Studies at the Chinese Academy of Social Sciences in Beijing, cautioned that workers could be the first to suffer if the conflict escalates. The cost of doing business in China, he said, could swell and spur layoffs.

"The impact will be huge," Mr Wu said. "We are in the second phase of this trade war, and everyone has stopped having illusions."

China's manufacturing sector, which comprises nearly a third of the economy, grew at a dampened pace in August, with demand falling to a 15-month low, according to a report Monday from Caixin China General Manufacturing Purchasing Managers Index that blamed trade tensions and new environmental protection policies. New export orders dwindled for the fifth straight month.

Climbing labor costs, however, long ago started shoving production from China to India, Vietnam and other countries in Southeast Asia. The trade dispute has sped up this process, said Thibaud Andre, a senior consultant at Daxue Consulting in Beijing, which advises both Chinese and foreign firms.

"It's just an acceleration of a trend that started years ago," he said.

Mr Trump has imposed levies on a variety of Chinese goods this year, starting with steel and aluminum imports and then advancing to US$50 billion in industrial equipment, plastics and chemicals.

He aims to reduce the US$376 billion trade deficit with China and pressure the country to work with American firms without tapping their business secrets - Beijing has denied allegations of stealing foreign technology - among other changes to its commercial practices.

The Chinese government has responded by imposing new border taxes on an equal amount of US imports, including pork, soybeans and automobiles.

David Dollar, who served as the US Treasury Department's economic and financial emissary to China from 2009 to 2013, said there is no sign that tensions will soon ease between the two sides.

"It is unlikely that the U.S. would back down now," he said, "because there are no talks underway and no obvious reason for the administration to change course."

However, given the backlash from the business community, Mr Dollar said the White House could choose to drop some items from its list of tariff targets, shrinking the headline total from US$200 billion.

Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies, a think tank in Washington, said she expects Mr Trump to plow ahead with the full list, despite the political and economic risks.

"President Trump appears to think that by upping the ante he can wrest major concessions from China," she said.

Chinese leaders have pledged to add tariffs to another US$60 billion of US goods if Mr Trump follows through on his threat Thursday. After that, Beijing will have practically run out of products to tax: China bought US$130 billion in goods last year from the United States, compared to America's orders of US$505 billion in goods from the Asian country.

There are other ways to make life harder for US companies: Some businesses here have already reported a sudden hike in regulations, such as prolonged border inspections of goods, which have resulted in loads of spoiled fruit. (Beijing has denied any formal mandates to mess with American firms.)

The Chinese government is also known to incite boycotts of foreign brands. The South Korean conglomerate Lotte Group got a taste of that last year, analysts said, after the firm allowed the American military to use its land for a missile defense system that China fears can be used against it.

Next up could be Apple, suggested an August editorial in the government-backed Global Times newspaper: "China is by far the most important overseas market for the US-based Apple, leaving it exposed if Chinese people make it a target of anger and nationalist sentiment."