US companies are facing a challenging business environment in China. The American Chamber of Commerce in China’s (AmCham China) President, Michael Hart, reports that American firms are “more negative than they’ve been in a long time” about doing business in China, citing the rivalry between the two countries as a major reason for this. The tension between the US and China has grown over the years, with disagreements ranging from Ukraine, coronavirus, and Taiwan, to Tiktok, and semiconductors. AmCham China’s latest survey, with over 900 members, shows that 55% no longer regard China as a top-three investment priority. In addition, 66% see the uncertainty of bilateral relations as their leading challenge in China, and 49% believe that China has become less welcoming to foreign companies. These developments come as the US and China continue to impose tariffs on each other’s goods. Despite the challenges, the two countries recorded a record trade of $690.6bn in 2020, indicating their mutual dependence. However, US companies are looking at moving their supply chains outside of China, and are adopting a “China plus one” strategy to de-risk their supply chains. Nevertheless, many US companies are still optimistic about the giant Chinese consumer market.

The Challenges for US Companies in China

Michael Hart of AmCham China has identified several reasons why US firms are finding it increasingly challenging to do business in China. These include the difficulty in travel, rising labour costs, executives being unwilling to take up assignments in China, political pressure, and China becoming a less predictable place in which to do business. The survey results show that these challenges have led to a decrease in American companies’ confidence in investing in China.

US-China Trade Relations

Despite the challenges and tensions between the US and China, trade between the two countries hit a record high of $690.6bn in 2020. The US and China are mutually dependent, and this has implications for the global economy. China needs technology products from the US, and the US has many companies that run their supply chains through China. As Professor Eswar Prasad of Cornell University explains, the relationship between the US and China sets the tenor for global trade. The US-China relationship’s deterioration could lead to a weakening of the rules-based global trading system that both countries have signed up to.

Moving Supply Chains Out of China

The deteriorating relationship between the US and China has led to a growing number of US companies looking to move their supply chains outside of China. Apple, for instance, is increasingly making iPhones in countries such as India. However, Dan Wang, the chief economist at Hang Seng Bank China, says that even if the US succeeds in building up an alternative supply chain, that alternative will still largely depend on China. Other countries will still rely on China for components, especially in industries such as green energy, medical technology and electronics.

Despite the challenges, US companies remain optimistic about the giant Chinese consumer market. Firms such as McDonald’s, Starbucks and Ralph Lauren all have major Chinese expansion plans in the pipeline. Beijing still wants US companies to invest in China, but the backdrop of national security concerns between the two nations, centred on technology, is leading to a growing number of Chinese companies looking to become self-sufficient. US firms will have to grapple with these challenges and rethink their strategies for doing business in China.