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    A Rural Michigan Town Is the Latest Battleground in the U.S.-China Fight

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    Firestorms over Chinese investments, like a battery factory in Green Charter Township, are erupting as officials weigh the risks of taking money from an adversary.Yard signs along the quiet country roads of Green Charter Township, Mich., home to horse farms and a 19th-century fish hatchery, blare a message that an angered community hopes is heard by local leaders, the Biden administration and China: “No Gotion.”The opposition is to a plan by Gotion, a subsidiary of a Chinese company, to build a $2.4 billion electric vehicle battery factory on roughly 270 acres of largely uninhabited scrub land. An investment of that magnitude can transform a local economy, but in this case it is unwelcome by many. Residents fear that the company’s presence is a dangerous infiltration by the Chinese Communist Party and it has led to backlash, death threats and an attempt to unseat the elected officials who backed the project.The debate over the factory has turned a township of about 3,000 people located 60 miles north of Grand Rapids against each other and into an unlikely battleground in the economic contest between the United States and China. The resistance is part of a broader movement by states to erect new barriers to Chinese investment amid concerns about national security and growing anti-China sentiment.“It’s the Communist influences that I’m bothered by, because they have shown repeatedly that they don’t care about our rules, our laws or anything,” said Lori Brock, who lives on a 150-acre horse farm near where the battery factory is being built. “They shouldn’t be able to buy here.”Gotion purchased 270 acres of land in Green Charter Township with plans to build an electric vehicle battery plant.Cydni Elledge for The New York TimesThat sentiment has been reverberating in the United States and on the Republican presidential campaign trail this year. In August, the campaign of Nikki Haley called Michigan’s Democratic governor, Gretchen Whitmer, a “comrade” for backing the Gotion factory. On Wednesday, Vivek Ramaswamy, a Republican candidate who has called for banning Chinese investments, will hold a rally at Ms. Brock’s farm.Gotion has insisted that it has no ideological ties to China. John Whetstone, a company spokesman, said Gotion was “in no way affiliated with any political party,” explaining that it had pledged to the township not to partake in any activity that supports or encourages any political philosophy.Animosity toward China has been deterring Chinese investment in the United States in recent years. Annual investment by Chinese companies has fallen to $5 billion in 2022 from $46 billion in 2016, according to a recent report by Rhodium Group, as relations between the world’s two largest economies soured. Employment at Chinese firms in the United States has declined by nearly 40 percent since 2017, to 140,000 workers.But investment is starting to turn around as a result of new federal incentives — included in the 2022 Inflation Reduction Act — that were meant to spur American production of electric vehicles. Foreign companies, including those from China, are trying to capitalize on tax credits for businesses that manufacture renewable energy products inside the United States.The Coalition for a Prosperous America, which represents American manufacturers, estimates that Chinese companies could gain access to $125 billion in U.S. tax credits related to “green energy manufacturing” investments.“There are really strong commercial logics driving this, and those commercial logics aren’t going away anytime soon,” said Kyle Jaros, a professor at the University of Notre Dame, who studies Chinese investment in the United States.The possibility that American taxpayers could subsidize Chinese firms has stoked anger in local communities and in Congress, where lawmakers are scrutinizing transactions involving companies with ties to China and urging the Biden administration to block them.Experts predict that Chinese companies will continue to pursue investments in the United States but concerns at the local level and in Washington are mounting.Cydni Elledge for The New York TimesSenator Marco Rubio of Florida, a Republican, has introduced legislation that would block subsidies to Chinese battery companies. A House committee has demanded answers about a licensing agreement between Ford and the Chinese battery company Contemporary Amperex Technology Co. Limited. Ford has defended the project and described it as an effort to strengthen domestic battery production.House Republicans have also urged Treasury Secretary Janet L. Yellen to withhold any federal subsidies for the Gotion facility and questioned why the Committee on Foreign Investment in the United States did not block its investment.Gotion has said that it voluntarily submitted documents to the interagency panel, known as CFIUS, and the committee declined to block the transaction.The Inflation Reduction Act does restrict American consumers from getting tax credits if they buy electric cars that have parts that come from “foreign entities of concern,” such as China. However, the law does not allow the Treasury to block Chinese companies from securing tax credits if they build factories in the United States.“We know that the vast majority of investments made through the Inflation Reduction Act are being made by American companies,” said Wally Adeyemo, the deputy Treasury Secretary.The Treasury estimates that only 2 percent of the electric vehicle and battery investments that have been made during the Biden administration involve Chinese companies.Gotion already has operations in California and Ohio and plans to open a $2 billion lithium battery manufacturing plant in Illinois. The company chose Michigan last year after securing nearly $800 million in grants and tax exemptions from the state’s strategic fund, whose officials said the investment would bring jobs, customers and economic vitality to the region. At the time, Ms. Whitmer hailed the factory as a win for the state.Since then, a growing and vocal contingent has been working to halt the project.Much of that effort has been directed at Green Charter Township’s board of trustees, a group of local Republican officials who voted to allow Gotion to secure the state tax breaks. When residents realized that the company that was coming to town had ties to China, township meetings that usually drew a handful of people attracted hundreds of angry critics.Green Charter Township’s supervisor, Jim Chapman, sees the advantages of having a Gotion electric vehicle battery plant in the region.Cydni Elledge for The New York TimesJim Chapman, the township supervisor, has heard residents suggest that they would call in the Michigan militia or exercise their Second Amendment rights to stop Gotion from building the factory. Mr. Chapman, a lifelong Republican and former police officer, has found himself in the position of trying to convince his neighbors that allowing Gotion to bring more than 2,000 new jobs to the area will create a housing boom and bring other new businesses to the area.Yet residents have confronted Mr. Chapman with a host of conspiracy theories including that the plant is a “Trojan Horse” and that it will be used to spy on Americans. Some in town believe that the plant will employ cheap Chinese labor, instead of local workers, and erect cooling towers to conceal ballistic missiles.“No Gotion” groups active on Facebook and other social media platforms have seized on the company’s bylaws, which say the company operates in accordance with the Constitution of the Communist Party of China.Kelly Cushway, an organizer in the Gotion resistance movement, opposes the facility and is running for trustee of Green Charter Township.Cydni Elledge for The New York Times“I will go to my grave and people will curse me for this project,” Mr. Chapman said during an interview in his office inside the Green Charter Township building.After researching the company and the actions of other Chinese businesses that operate in the United States, Mr. Chapman concluded that Gotion was not a threat and that the opportunity to invigorate a relatively poor part of the state was worthwhile.“What are they going to spy on us for in Big Rapids? Are they going to steal Carlleen Rose’s fudge recipe?” Mr. Chapman asked, referring to the owner of a popular confectionery in Big Rapids.Opponents hope that a November recall election can replace the board and stop Gotion in its tracks. Residents are raising money to file lawsuits and petition against every permit that Gotion will need to construct a factory that is expected to span more than a million square feet.“I’m worried about environmental catastrophes — there’s going to be 200 to 300 truckloads of chemicals coming in every day,” said Kelly Cushway, who opposes Gotion and is running for a seat on the Green Charter Township board. “We know China has not worried too much about their environment.”Some community activists such as Ms. Brock are coordinating with counterparts in other states including North Dakota, where Fufeng USA tried and failed to construct a corn mill, to learn how to terminate a Chinese investment.Ms. Brock said she remained hopeful that the Gotion factory in her town could be halted.“We haven’t even started,” Ms. Brock said. “We haven’t even hit them with one lawsuit yet, and it’s coming.” More

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    What Retail Sales and Other Data Say About China’s Economy

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    Consumers are spending a little more, but apartment prices and the pace of construction keep falling.China’s trains, planes, stores and beaches were a little fuller last month than a year ago, and the pace of activity picked up at factories, particularly those making mobile phones and semiconductors.A batch of numbers released on Friday by China’s National Bureau of Statistics showed a modest improvement in the country’s overall retail sales and industrial production during August. A series of small steps taken by the government over the summer, including two rounds of interest rate cuts, seems to be yielding a slightly better-than-expected improvement in the country’s economy.“The national economy has accelerated its recovery, production and supply have increased steadily, market demand has gradually improved,” Fu Linghui, China’s director of national economic statistics, said at a news conference.But many foreign economists were more guarded.“Some may be of the view that China’s economy has already bottomed out, but we remain cautious,” said a research note from Nomura, a Japanese bank.Real estate remains a persistent risk.The broad troubles of China’s real estate sector continue to cast a long shadow over the country’s economic prospects. Property investment plummeted nearly a fifth in August from the same month a year ago, an even steeper decline than in July.Construction sites around China appear visibly less busy, although activity has not stopped entirely and tower cranes still dot the skyline.Construction of new apartment towers has faltered because of falling apartment prices.Based on data released on Friday for prices of new apartments in 70 large and medium-sized cities across China, Goldman Sachs calculated that prices were falling in August at a seasonally adjusted annual rate of 2.9 percent, compared with 2.6 percent in July.Construction sites around China appear visibly less busy, although activity has not stopped entirely and construction cranes still dot the skyline.Qilai Shen for The New York TimesThe statistics for new apartments considerably understate the speed and extent of price declines, however, as local governments have put heavy pressure on developers not to cut prices.Prices of existing homes in 100 cities across China fell an average of 14 percent by early August from their peak two years earlier, according to the Beike Research Institute, a Tianjin research firm. Rents have fallen 5 percent.Construction and related activities, including public works projects, make up at least a quarter of the Chinese economy. The government has tried to offset the plunge in apartment construction by demanding that already deeply indebted local and provincial governments undertake a debt-fueled wave of large projects, including new subways, municipal water systems, highways, public parks, high-speed rail lines and other infrastructure.Banks are being squeezed.Loans that China’s banks have made to property developers, dozens of which have defaulted on debt payments, are in trouble. So are loans to local governments and their financial affiliates involved in real estate. Banks are allowed to demand immediate repayment if work on a construction project has stopped, but they are reluctant to do so. Demand for new real estate loans remains weak.The central bank, the People’s Bank of China, announced on Thursday that it was freeing banks to set aside smaller reserves and start extending more credit. The move was widely seen as intended to accommodate an upcoming large batch of bond issuance by local and provincial governments to pay for their infrastructure projects.Investment in fixed assets was held back by property woes.Overall investment in what are known as fixed assets was up 3.2 percent for the first eight months of this year compared to the same months last year — infrastructure spending plus some manufacturing investment offset the property nosedive. The pace through August represented a slowdown from 3.4 percent the prior month.The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago.Agence France-Presse — Getty ImagesThe production of semiconductors rose 21.1 percent in August from a year earlier. The government has more heavily subsidized chip-making as the United States has restricted the export to China of a few of the highest-speed computer chips and of the gear to manufacture them.The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago after adjusting for considerable deflation in wholesale prices for factory goods over the past year. The increase had been 3.7 percent in July.Consumers are changing how they spend.Retail sales were up 4.6 percent in August from the same month last year, as rising energy prices likely pushed up retail sales, Nomura said.A main reason that retail sales rebounded was because a year ago, people in China were still living under stringent “zero Covid” measures that restricted their activity.Beer and wine production dropped from a year ago while output rose for bottled water, carried by many Chinese people during outdoor activities, and production of fruit and vegetable juices climbed sharply. More

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    The U.S. and China Are Talking Again. Where It Will Lead Is Unclear.

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    Gina Raimondo, the U.S. commerce secretary, and her Chinese counterparts agreed to continue economic talks, but such dialogues have a disheartening record.Gina Raimondo, the commerce secretary, expressed hopes that American and Chinese officials would work on improving the countries’ business relationship.Pool photo by Andy WongWhen Gina Raimondo, the commerce secretary, visited China this week, she joined a long line of U.S. politicians who have come to the country to try to sway Chinese officials to open their market to foreign businesses and buy more American exports, in addition to other goals.Ms. Raimondo left Shanghai on Wednesday night with no concrete commitments from China to treat foreign businesses more equitably or step up purchases of Boeing jets, Iowa corn or other products. In a farewell news conference, she said that hoping for such an outcome would have been unrealistic.Instead, Ms. Raimondo said her biggest accomplishment was restoring lines of communication with China that would reduce the chance of miscalculation between the world’s two largest economies. She and Chinese officials agreed during the trip to create new dialogues between the countries, including a working group for commercial issues that American businesses had urged her to set up.“The greatest thing accomplished on both sides is a commitment to communicate more,” Ms. Raimondo said on Wednesday.She had also delivered what she described as a tough message. The Biden administration was willing to work to promote trade with China for many categories of goods. But the administration was not going to heed China’s biggest request: that the United States reduce stringent controls on exports of the most advanced semiconductors and the equipment to make them.“We don’t negotiate on matters of national security,” Ms. Raimondo told reporters during her visit.While she called the trip “an excellent start,” the big question is where it will lead. There is a long history of frustrating and unproductive economic dialogues between the United States and China, and there are not many reasons to believe this time will prove different.Forums for discussion may have helped resolve some individual business complaints, but they did not reverse a broad, yearslong slide toward more conflict in the bilateral relationship. Now, the U.S.-China relationship faces a variety of significant security and economic issues, including China’s more aggressive posture abroad, its use of U.S. technology to advance its military and its recent raids on foreign-owned businesses.Ms. Raimondo says she has the backing of the president and U.S. officials. And Biden administration officials argue that even the shift to begin talking has been significant, after a particularly tense period. Relations between the United States and China became frosty last August when Representative Nancy Pelosi, the House speaker at the time, visited Taiwan, and they froze entirely after a Chinese surveillance balloon flew across the United States in February.Ms. Raimondo’s trip capped a summer of outreach by four senior Biden officials. R. Nicholas Burns, the U.S. ambassador to China, who took office in January 2022 and accompanied Ms. Raimondo on the trip, said on Tuesday that American officials “literally were not talking to the Chinese leadership at a senior level, my first 15 months here.”“In a very, very challenging relationship, intensive diplomacy is critical,” he added.Not everyone views re-engagement as a good thing. Republican lawmakers, in particular, increasingly see the conflict between the United States and China as a fundamental clash of national interests. Critics view the outreach as an invitation for China to drag out reforms, or a signal to Beijing that the United States is willing to make concessions.“Of the more than two dozen great-power rivalries over the past 200 years, none ended with the sides talking their way out of trouble,” Michael Beckley, an associate professor of political science at Tufts University, wrote in Foreign Affairs this month. He added, “The bottom line is that great-power rivalries cannot be papered over with memorandums of understanding.”The space for compromise also seems narrow. Both governments have little desire to be seen by domestic audiences as making concessions. And in both countries, the share of trade that is considered off limits or a matter of national security concerns is growing.Ms. Raimondo at Shanghai Disneyland on Wednesday. She said her biggest accomplishment in her trip to China was restoring communication to reduce the chance of miscalculation.Pool photo by Andy WongMs. Raimondo expressed wariness at being drawn into unproductive talks with China — a persistent issue over the last several decades. But she also described herself as a pragmatist, who would push to accomplish what she could and not waste time on the rest.“I don’t want to return to the days of dialogue for dialogue’s sake,” she said. “That being said, nothing good comes from shutting down communication. What comes from lack of communication is mis-assessment, miscalculation and increased risk.”“We have to make it different,” Ms. Raimondo said of her new dialogue, adding that the U.S.-China relationship was too consequential. “We have to commit ourselves to take some action. And we can’t allow ourselves to devolve into a cynical place.”Kurt Tong, a former U.S. consul general in Hong Kong who is now a managing partner at the Asia Group, a Washington consulting firm, said Ms. Raimondo had offered China half of what it wanted. She sent a clear message that many American companies should feel free to do business in China, after years of receiving criticism for doing so during the Trump administration and still from many Republicans in Congress. But she did not agree to relax American export controls.“China is essentially forced by circumstances to accept that half a loaf,” Mr. Tong said, adding, “I do sense there is a real desire in Beijing to stabilize the relationship, both because of the geopolitical relationship but also, perhaps more important, the doldrums on the economic side.”The recent weakness in the Chinese economy may create some opening for compromise. The Chinese economy has only limped back from its pandemic lockdowns. China’s youth unemployment rate has risen, its debt is piling up, and foreign investment in the country has fallen, as multinational companies look for other places to set up their factories.In a meeting with Ms. Raimondo on Wednesday, the Shanghai party secretary, Chen Jining, admitted that the sluggish economy made business ties more crucial.“The business and trade ties serve the role as stabilizing ballast for the bilateral ties,” Mr. Chen said. “However, the world today is quite complicated. The economic rebound is a bit lackluster. So stable bilateral ties in terms of trade and business is in the interest of two countries and is also called for by the world community.”Ms. Raimondo met with Chen Jining, the Shanghai party secretary, on Wednesday.Pool photo by Andy WongMs. Raimondo responded that she was looking forward to discussing “concrete” ways they might be able to work together to accomplish business goals and “to bring about a more predictable business environment, a predictable regulatory environment and a level playing field for American businesses here in Shanghai.”Some of the issues that Ms. Raimondo raised during her visit — including intellectual property theft, patent protection and the inability of Visa and Mastercard to receive final approval for access to the Chinese market — are the very same ones that were discussed in economic dialogues with China more than a decade ago, including under Presidents George W. Bush and Barack Obama.For instance, China promised in 2001 as part of its entry into the World Trade Organization that it would quickly allow American credit card companies into its market, and it lost a W.T.O. case on the issue in 2012. But 22 years later, Visa and Mastercard still do not have equal access to the Chinese market.For more than three decades, commerce secretary visits to China followed a familiar script. The visiting American official would call on China to open its markets to more American investment, and to allow more equal competition among foreign and local companies. Then the commerce secretary would attend the signing of contracts for exports to China.That included Barbara H. Franklin, who in 1992, at the end of the George H.W. Bush administration, oversaw the signing of $1 billion in contracts and the re-establishment of commercial relations with China after the deadly Tiananmen Square crackdown in 1989.Gary Locke of the Obama administration oversaw the signing of a broad contract in 2009 for the provision of American construction services. And Wilbur Ross, who went to China on behalf of President Donald J. Trump in 2017, came back with $250 billion in deals for everything from smartphone components to helicopters to Boeing jets.These deals did little to erase China’s enormous trade imbalance with the United States. China has fairly consistently sold $3 to $4 a year worth of goods to the United States for each dollar of goods that it purchased.In a sign of how much the focus of the relationship has shifted, Ms. Raimondo’s trip contained more discussion of national security than of new contracts. She gave her final news conference in a hangar at Shanghai Pudong Airport near two Boeing 737-800s, but did not mention the contract for several Boeings that China has yet to accept, much less any new sales.China, the world’s largest single market for new jetliners in recent years, essentially stopped buying Boeing jets during the Biden administration and switched to Airbus planes from Europe to show its unhappiness with American policies. Ms. Raimondo said on Tuesday that she had raised the lapse of Boeing purchases with Chinese leaders during her two days in Beijing.“I brought up all those companies,” Ms. Raimondo said. “I didn’t receive any commitments. I was very firm in our expectations. I think I was heard. And as I said, we’ll have to see if they take any action.” More

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    U.S. Does Not Want to ‘Decouple’ From China, Raimondo Says

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    Gina Raimondo, the commerce secretary, emphasized U.S. concerns over harsh treatment of foreign companies and national security issues in a meeting with top officials in Beijing.Gina Raimondo, the U.S. secretary of commerce, told Chinese officials on Tuesday that the United States was not seeking to sever economic ties with China, but she expressed a litany of concerns that were prompting the business community to describe China as “uninvestable.”Ms. Raimondo, who oversees both trade promotion and U.S. limits on China’s access to advanced technology, spoke with several of China’s top officials on Tuesday. That included meeting with Premier Li Qiang, China’s second-highest official, and Vice Premier He Lifeng, who oversees many economic issues, at the Great Hall of the People, next to Tiananmen Square in the heart of Beijing.Ms. Raimondo said she had pressed Chinese officials on a variety of challenges facing American businesses operating in China. Companies have expressed concerns about long-running issues like intellectual property theft as well as a raft of newer developments, like raids on businesses, a new counterespionage law and exorbitant fines that come without explanations, she said during an extended interview with reporters on a high-speed train from Beijing to Shanghai on Tuesday evening.“Increasingly, I hear from businesses China is uninvestable because it has become too risky,” she said.Ms. Raimondo said after the meetings that she had raised the various concerns of U.S. companies like Intel, Micron and Boeing, but that she “didn’t receive any commitments.” Beijing scuttled Intel’s acquisition of another semiconductor company this month by not giving the deal antitrust approval. It has also severely restricted some of Micron’s semiconductor sales in China since May and has halted almost all purchases of Boeing jets over the last several years, mainly choosing Airbus aircraft from Europe instead.“I was very firm in our expectations. I think I was heard,” she added. “We’ll have to see if they take any action.”Ms. Raimondo also asked for China’s cooperation on broader threats like climate change, fentanyl and artificial intelligence. The Chinese in turn asked for the United States to reduce export controls on advanced technology and retract a recent executive order that bans new investments in certain advanced technologies, Ms. Raimondo said.The commerce secretary said she had refused those requests. “We don’t negotiate on matters of national security,” she said.Still, Ms. Raimondo tried to assure the Chinese that export controls applied only to a small proportion of U.S.-China trade, and that other economic opportunities between the countries should be embraced.“This isn’t about decoupling,” she said. “This is about maintaining our very consequential trade relationship, which is good for America, good for China and good for the world. An unstable economic relationship between China and the United States is bad for the world.”The official Xinhua news agency said late Tuesday that Premier Li had told Ms. Raimondo that economic relations between China and the United States were “mutually beneficial.” But he also warned that “politicizing economic and trade issues and overstretching the concept of security will not only seriously affect bilateral relations and mutual trust, but also undermine the interests of enterprises and people of the two countries, and will have a disastrous impact on the global economy.”Ms. Raimondo’s visit is part of an effort by the Biden administration to stop a long deterioration in the U.S. relationship with China and restore communications. She is the fourth senior Biden administration official to travel to China in three months. Her conversations with Chinese officials — which ranged from issues of national security to commercial opportunities for tourism — attested to both the economic potential of the trading relationship and its immense challenges.Chinese officials have welcomed her visit as an opportunity to reduce tensions and air their concerns. Seated in a red-carpeted reception room on the second floor of the Great Hall, Mr. He said at the start of their meeting that he was ready to work with Ms. Raimondo, and hoped the United States would adopt rational and practical policies. She responded by laying out what the Biden administration sees as its priorities.“The U.S.-China commercial relationship is one of the most globally consequential, and managing that relationship responsibly is critical to both our nations and indeed to the whole world,” Ms. Raimondo said. “And while we will never of course compromise in protecting our national security, I want to be clear that we do not seek to decouple or to hold China’s economy back.”On Monday, Ms. Raimondo and China’s commerce minister, Wang Wentao, met and agreed to hold regular discussions between the two countries on commercial issues. Those talks are set to include business leaders as well as government officials. The two governments also agreed to exchange information, starting with a meeting by their senior aides on Tuesday morning in Beijing, about how the United States enforces its export controls.Earlier on Tuesday, Ms. Raimondo met with China’s minister of culture and tourism, Hu Heping. That meeting came less than three weeks after Beijing lifted a ban on group tours to the United States that it had imposed during the pandemic, when China closed its borders almost completely for nearly three years.The two ministers agreed at the meeting that the United States and China would host a gathering in China early next year to promote the travel industry, the latest in a series of business promotion activities that Ms. Raimondo has been organizing.Travel from China to the United States remains at less than a third of prepandemic levels, the United States Travel Association, an industry group, said on Saturday.The number of nonstop flights between the two countries is still less than a tenth of its level before the pandemic. Chinese airlines carried most of the passengers between the two countries before the pandemic. But after Beijing frequently blocked American carriers’ flights to China during the pandemic because of Covid cases aboard — while allowing Chinese carriers’ flights to continue — the Biden administration began insisting on strict reciprocity.After the retirement of many pilots and flight attendants during the pandemic, American carriers have struggled to meet travel demand within the United States. They have been slow to restore long-haul services to China, which require many crews to operate, although United Airlines announced recently that this autumn it would increase the frequency of flights from San Francisco to Shanghai, and would resume flights from San Francisco to Beijing.Senior American officials previously tended to fly between Beijing and Shanghai during visits to China, but the Commerce Department decided to move its sizable delegation by train on this trip. Huge Chevrolet Suburban sport utility vehicles carrying Ms. Raimondo and her aides pulled straight up onto the train platform to unload them into one of China’s high-speed electric trains, which travel for long stretches at 217 miles per hour, or 350 kilometers an hour.The trains travel from Beijing to Shanghai, a distance comparable to the journey from New York to Atlanta or Chicago, in as little as four and a half hours, depending on how many stops they make. The trains, usually with 16 or more passenger cars, depart several times an hour in each direction. More

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    Factories May Be Leaving China, but Trade Ties Are Stronger Than They Seem

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    The United States is trying to lessen its dependence on Chinese goods, but research is showing how tough it is to truly alter global supply chains.The United States has spent the past five years pushing to reduce its reliance on China for computer chips, solar panels and various consumer imports amid growing concern over Beijing’s security threats, human rights record and dominance of critical industries.But even as policymakers and corporate executives look for ways to cut ties with China, a growing body of evidence suggests that the world’s largest economies remain deeply intertwined as Chinese products make their way to America through other countries. New and forthcoming economic papers call into question whether the United States has actually lessened its reliance on China — and what a recent reshuffling of trade relationships means for the global economy and American consumers.Changes to global manufacturing and supply chains are still unfolding, as both punishing tariffs imposed by the administration of former President Donald J. Trump and tougher restrictions on the sale of technology to China imposed by the Biden administration play out.The key architect of the latest restrictions — Gina Raimondo, the commerce secretary — is meeting with top Chinese officials in Beijing and Shanghai this week, a visit that underscores the challenge facing the United States as it seeks to reduce how much it depends on China when the countries’ economies share so many ties.These reworked trade rules, along with other economic changes, have caused China’s share of imports into the United States to fall as the share of imports from other low-cost countries like Vietnam and Mexico have climbed. The Biden administration has also pumped up incentives for producing semiconductors, electric cars and solar panels domestically, and manufacturing construction in the United States has been rising quickly.Commerce Secretary Gina Raimondo met with Chinese officials in Beijing on Monday.Pool photo by Andy Wong, Getty ImagesBut new research discussed at the Federal Reserve Bank of Kansas City’s annual conference at Jackson Hole in Wyoming on Saturday found that while global trade patterns have reshuffled, American supply chains have remained very reliant on Chinese production — just not as directly.In their paper, the economists Laura Alfaro at Harvard Business School and Davin Chor at the Tuck School of Business at Dartmouth wrote that China’s share of U.S. imports fell to about 17 percent in 2022 after peaking at about 22 percent in 2017, as the country accounted for a smaller share of America’s imports in categories like machinery, footwear and telephone sets. As that happened, places like Vietnam gained ground — supplying the United States with more apparel and textiles — while neighbors like Mexico began sending more car parts, glass, iron and steel.American Imports Shift Away From ChinaChange in the share of U.S. imports coming from each area between 2017 and 2022

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    Percentage points
    Source: Analysis of Comtrade data by Laura Alfaro and Davin ChorBy The New York TimesThat would seem to be a sign that the United States is lessening its reliance on China. But there’s a hitch: Both Mexico and Vietnam have themselves been importing more products from China, and Chinese direct investment into those countries has surged, indicating that Chinese firms are setting up more factories there.The trends suggest that firms may simply be moving the last steps in their lengthy supply chains out of China, and that some companies are using countries like Vietnam or Mexico as staging areas to send goods that are still partly or largely made in China into the United States.While proponents of decoupling argue that any move away from China may be a good thing, the reshuffling appears to have other consequences. The paper finds that shifting supply chains are also associated with higher prices for goods.A drop of five percentage points in the share of imports coming from China may have pushed prices on Vietnamese imports up 9.8 percent and Mexican imports up 3.2 percent, based on the authors’ calculations. While more research is needed, the effect could be slightly contributing to consumer inflation, they say.“That is our first caution — this is likely to have cost effects — and the second caution is that it is unlikely to diminish dependence” on China, Ms. Alfaro said in an interview.The research echoes findings from a forthcoming paper by Caroline Freund of the University of California, San Diego, and economists at the World Bank and International Monetary Fund, which examined how trade in specific imports from China had changed since Mr. Trump began imposing tariffs on them.That paper found that tariffs had a substantial impact on trade, reducing U.S. imports of the goods that were subject to the levies, even as the absolute value of U.S. trade with China continued to rise.The countries that were able to capture the market share lost by China were those that already specialized in making the products that were subject to tariffs, like electronics or chemicals, as well as countries that were deeply integrated into China’s supply chains and had a lot of trade back and forth with China, Ms. Freund said. They included Vietnam, Mexico and Taiwan.“They’re also increasing imports from China, precisely in those products that they’re exporting to the U.S.,” she said.Higher import tariffs have not deterred the influx of cars from China.Agence France-Presse — Getty ImagesPresident Biden added tougher restrictions to electric car manufacturers in China.Agence France-Presse — Getty ImagesWhat this all means for efforts to bring manufacturing back to the United States is unclear. The researchers come to different conclusions about how much that trend is occurring.Still, both sets of researchers — as well as other economists at Jackson Hole, the Fed’s most closely watched annual conference — pushed back on the idea that these supply-chain shifts meant that global trade overall was retrenching, or that the world was becoming less interconnected.The pandemic, Russia’s invasion of Ukraine, and tensions between the United States and China have prompted some analysts to speculate that the world may turning away from globalization, but economists say that trend is not really borne out in the data.“We don’t see de-globalization at a macro level,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said during a panel at the Jackson Hole symposium. But she pointed to what she characterized as a worrying change in expectations.“Rhetoric on de-globalization is taking hold, and that feeds into the political tensions and then into the policymaking,” she said. “My fear is that rhetoric might turn into reality and we might see this shift in investment patterns.”Others at Jackson Hole warned of other consequences, such as product shortages.A move toward production domestically or in only closely allied countries could “imply new supply constraints, especially if trade fragmentation accelerates before the domestic supply base has been rebuilt,” Christine Lagarde, the head of the European Central Bank, said in a speech on Friday.Global supply chains tend to change slowly, because it takes time for companies to plan, invest in and construct new factories. Economists are continuing to track current changes to global sourcing.Given growing geopolitical tensions with China as well as more recent troubles in the country’s economy, further shifts in global supply chains may be unavoidable.One question for economists now, Ms. Alfaro said, is whether the economic benefits from moving factories back to the United States or other friendly countries — like innovation in the U.S. manufacturing sector — will ultimately outweigh the costs of the strategy, for example, the higher prices paid by consumers.And separately, Ms. Freund said she believed the costs of reshoring had been “really under considered” by the government and others.The typical narrative was that “we’re going to bring it all back and we’re going to have all these jobs and it’s all going to be hunky-dory, but, in fact, it’s going to be extremely costly to do that,” she said. “Part of the reason we had such low inflation in the past was because we were bringing in lower-cost goods and improving productivity through globalization.” More

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    What China’s Economic Woes May Mean for the U.S.

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    The fallout is probably limited — and there may be some upside for American interests.The news about China’s economy over the past few weeks has been daunting, to put it mildly.The country’s growth has fallen from its usual brisk 8 percent annual pace to more like 3 percent. Real estate companies are imploding after a decade of overbuilding. And China’s citizens, frustrated by lengthy coronavirus lockdowns and losing confidence in the government, haven’t been able to consume their way out of the country’s pandemic-era malaise.If the world’s second-largest economy is stumbling so badly, what does that mean for the biggest?Short answer: At the moment, the implications for the United States are probably minor, given China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.In a note published Thursday, Wells Fargo simulated a “hard landing” scenario for China in which output over the next three years would be 12.5 percent smaller than previous growth rates would achieve — similar to the impact of a slump from 1989 to 1991. Even under those conditions, the U.S. economy would shave only 0.1 percent off its inflation-adjusted growth in 2024, and 0.2 percent in 2025.That could change, however, if China’s current shakiness deepens into a collapse that drags down an already slowing global economy.“It doesn’t necessarily help things, but I don’t think it’s a major factor in determining the outlook in the next six months,” Neil Shearing, the chief economist at Capital Economics Group, an analysis and consulting firm, said in a recent webinar. “Unless the outlook for China becomes substantially worse.”A potential balm for inflation, but a threat to factories.When considering the economic relationship between the two countries, it’s important to recognize that the United States has played some role in China’s troubles.The United States is well past a boom in consumption during the pandemic that pulled in $536.8 billion worth of imports from China in 2022. This year, with home offices and patios stuffed full of furniture and electronics, Americans are spending their money on cruises and Taylor Swift tickets instead. That lowers demand for goods from Chinese factories — which had already been weakened by a swath of tariffs that former President Donald J. Trump started and the Biden administration has largely kept in place.How Much America Buys From (and Sells to) ChinaMonthly goods imports have fallen since a pandemic-era boom.

    Source: Census BureauBy The New York TimesFor years, China’s leaders have said they want to rely more on the country’s households to drive economic growth. But they have taken few steps to support domestic consumption, such as shoring up safety net programs, which would persuade residents to spend more of the money they now save in case of emergencies.That’s why some are concerned that China could again fall back on encouraging exports to foster growth. Such a strategy might succeed since the Chinese currency, the renminbi, is very weak against the dollar, and it’s possible to evade tariffs on most items by assembling Chinese parts in other countries — like Vietnam and Mexico.An export surge would have countervailing effects. It could lower prices for consumer goods, which — along with falling Chinese demand for commodities like gasoline and iron ore — would help lower inflation in the United States. At the same time, it could counteract efforts to resuscitate American manufacturing, raising the political temperature as the presidential election approaches.“My fear is that an export-based Chinese recovery will run up against a world that is reluctant to become ever more dependent on China for manufactures, and that becomes a source of tension,” said Brad Setser, a senior fellow at the Council on Foreign Relations.And what about goods flowing the other way, from the United States to China? It’s not a huge volume — China accounted for only 7.5 percent of U.S. exports in 2022. American businesses have long sought to further develop the Chinese market, especially for agricultural products such as pork and rice, but success has been underwhelming. In 2018, the Trump administration negotiated a compact under which China would buy billions more dollars in products from U.S. farmers.Those targets were never met. With appetite fading in China, they may never be. That could mean lower food prices globally, but farmers would be hurt.“If their demand for corn and soybeans is rising, that’s good for everybody who produces corn and soybeans around the world,” said Roger Cryan, the chief economist with the American Farm Bureau Federation. “It is something to be concerned about down the road.”Insulation for American institutions and investors.So much for general trade dynamics. But the U.S. economy is composed of millions of companies with particular concerns, and some may have more to worry about as China’s economy flounders.Tesla, for example, had made inroads in the Chinese market, but its sales there have tumbled in recent months in the face of tough competition from local brands with lower-cost models. Apple generates about 20 percent of its revenue in China, which could also take a hit as residents choose cheaper products.American banks that do business globally have noted slowing growth; Citigroup’s chief executive, Jane Fraser, said on the company’s second-quarter earnings call that China had been its “biggest disappointment.”Chinese tourists also pour money into U.S. cities when they visit, which they might do less of going forward. Glenn Fogel, the chief executive of Booking Holdings — which includes travel websites such as Booking.com and Priceline — said in his earnings call that their outbound business from China had been anemic.“I don’t expect a recovery in China for us for some time, significant time probably,” Mr. Fogel said.Those effects, however, are likely to be muted. Even if the economic picture darkens, the American and Chinese banking systems are separate enough to insulate U.S. institutions and investors, aside from the few who might have invested in property developers like Evergrande or Country Garden.“There aren’t realistic channels for financial contagion from China to the U.S.,” Dr. Setser said. While China’s central bank may hold off on buying U.S. Treasury bonds, he noted, any impact on the overall market could be contained. “There’s no real scenario where China disrupts the bond market in a way that the Fed cannot offset.”On the contrary, there may be some upside for American companies if Chinese investors, lacking domestic opportunities, move more of their money into the United States. China’s direct investment in U.S. assets is relatively low and could face new obstacles as states seek to erect barriers to Chinese purchases of U.S. real estate and commercial enterprises. But places that welcome it could benefit.“Given that the U.S. seems to be doing relatively well, you could have money coming to the U.S., both in search of higher yield and in search of safety,” said Eswar Prasad, a professor of trade policy at Cornell University.The wild card of geopolitics.Aside from any direct financial and economic spillovers, it’s worthwhile to consider whether a faltering China meaningfully alters geopolitical dynamics and American interests.Washington has long fretted that a China-dominated trading bloc could limit market access for American companies by setting rules that, for example, contain weak protections for intellectual property. Such a trade agreement came into force in early 2022 after the United States abandoned its push to form the Trans-Pacific Partnership.But if China appears less mighty, it may lose its attractiveness in a fracturing world. Countries that eagerly took loans from China for large infrastructure projects may turn back toward international lending institutions like the World Bank, despite their more stringent requirements.“The fact that the Chinese economy is seen as being in a rough spot, in addition to more aggressive outreach in Asia and elsewhere by the Biden administration, that has shifted the balance a little bit,” Dr. Prasad said.Could China’s economic condition affect its willingness to undertake any military adventures, such as an invasion of Taiwan? While the Communist Party leadership might seek to stir up patriotic spirits through such an attack, Dr. Prasad thinks a shaky economy would in fact make the use of military force less likely, given the resources required to sustain that kind of engagement.One thing to keep in mind: While China appears to be going through a rough patch, the outlook is uncertain. There’s a debate in think-tank circles about whether the country’s economic structure will be durable over the longer term or fundamentally unsound.Heiwai Tang, an economics professor at HKU Business School in Hong Kong, said it would be unwise to consider China the next Japan, on the brink of prolonged stagnation.“I remain optimistic that the government is still very agile and should be responsive to a potential crisis,” Dr. Tang said. “They know what to do. It’s just a matter of time before they come to some kind of consensus to do something.”Ana Swanson More

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    A Crisis of Confidence Is Gripping China’s Economy

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    China’s economy, which once seemed unstoppable, is plagued by a series of problems, and a growing lack of faith in the future is verging on despair.Earlier this year, David Yang was brimming with confidence about the prospects for his perfume factory in eastern China.After nearly three years of paralyzing Covid lockdowns, China had lifted its restrictions in late 2022. The economy seemed destined to roar back to life. Mr. Yang and his two business partners invested more than $60,000 in March to expand production capacity at the factory, expecting a wave of growth.But the new business never materialized. In fact, it’s worse. People are not spending, he said, and orders are one-third of what they were five years ago.“It is disheartening,” Mr. Yang said. “The economy is really going downhill right now.”For much of the past four decades, China’s economy seemed like an unstoppable force, the engine behind the country’s rise to a global superpower. But the economy is now plagued by a series of crises. A real estate crisis born from years of overbuilding and excessive borrowing is running alongside a larger debt crisis, while young people are struggling with record joblessness. And amid the drip feed of bad economic news, a new crisis is emerging: a crisis of confidence.A growing lack of faith in the future of the Chinese economy is verging on despair. Consumers are holding back on spending. Businesses are reluctant to invest and create jobs. And would-be entrepreneurs are not starting new businesses.“Low confidence is a major issue in the Chinese economy now,” said Larry Hu, chief China economist for Macquarie Group, an Australian financial services firm.Mr. Hu said the erosion of confidence was fueling a downward spiral that fed on itself. Chinese consumers aren’t spending because they are worried about job prospects, while companies are cutting costs and holding back on hiring because consumers aren’t spending.In the past few weeks, investors have pulled more than $10 billion out of China’s stock markets. On Thursday, China’s top securities regulator summoned executives at the country’s national pension funds, top banks and insurers to pressure them to invest more in Chinese stocks, according to Caixin, an economics magazine. Last week, stocks in Hong Kong fell into a bear market, down more than 20 percent from their high in January.From its resilience to past challenges, China forged a deep belief in its economy and its state-controlled model. It rebounded quickly in 2009 from the global financial meltdown, and in spectacular fashion. It weathered a Trump administration trade war and proved its indispensability. When the pandemic dragged down the rest of the world, China’s economy bounced back with vigor. The Global Times, a mouthpiece for the Chinese Communist Party, declared in 2022 that China was the “unstoppable miracle.”China’s president, Xi Jinping, speaking at in Shanghai in 2018, when he gave a rousing defense of the economy: “You have every reason to be confident.”Pool photo by Johannes EiseleOne factor contributing to the current confidence deficit is the prospect that China’s policymakers have fewer good options to fight the downturn than in the past.In 2018, with the economy in a trade war with the United States and its stock market nose-diving, Xi Jinping, China’s leader, gave a rousing speech.Mr. Xi was addressing an international trade fair in Shanghai and sought to quell the uncertainty: No one should ever waver in their confidence about the Chinese economy, despite some ups and downs, he said.“The Chinese economy is not a pond, but an ocean,” Mr. Xi said. “The ocean may have its calm days, but big winds and storms are only to be expected. Without them, the ocean wouldn’t be what it is. Big winds and storms may upset a pond, but never an ocean. When you talk about the future of the Chinese economy, you have every reason to be confident.”But in recent months, Mr. Xi has said little about the economy.Unlike past crises that were international in nature, a convergence of long-simmering domestic problems is confronting China — some a result of policy changes carried out by Mr. Xi’s government.After the 2008 financial crisis, China unleashed a huge stimulus package to get the economy moving again. In 2015, when its real estate market was teetering, Beijing handed out cash to consumers to replace run-down shacks with new apartments as part of an urban redevelopment plan that gave rise to another building boom in smaller Chinese cities.Now, policymakers are confronting a far different landscape, forcing them to rethink the usual playbook. Local governments and businesses are saddled with more debt and less leeway to borrow heavily and spend liberally. And after decades of infrastructure investments, there isn’t as much need for another airport or bridge — the types of big projects that would spur the economy.China’s policymakers are also handcuffed because they introduced many of the measures that precipitated the economic problems. The “zero Covid” lockdowns brought the economy to a standstill. The real estate market is reeling from the government’s measures from three years ago to curb heavy borrowing by developers, while crackdowns on the fast-growing technology industry prompted many tech firms to scale back their ambitions and the size of their work forces.When China’s top leaders gathered in July to discuss the rapidly deteriorating economy, they did not deliver a bazooka-style spending program as some had anticipated. Coming out of the meeting, the Political Bureau of the Chinese Communist Party presented a laundry list of pronouncements — many rehashed from previous statements — without any new announcements. It focused, however, on the need to “boost confidence,” without detailing the measures that showed policymakers were ready to do that.“Whether you have confidence in the Chinese economy is actually whether you have confidence in the Chinese government,” said Kim Yuan, who lost his job in the home decoration industry last year. He has struggled to find another job, but he said the economy was unlikely to worsen significantly as long as the government maintained control.

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    China consumer confidence index
    Source: China National Bureau of Statistics via CEIC DataBy The New York TimesConfronted with dwindling confidence, the government has fallen back on a familiar pattern and stopped announcing troubling economic data.This month, China’s National Bureau of Statistics said it would stop releasing youth unemployment figures, a closely watched indicator of the country’s economic troubles. After six straight months of rising joblessness among the country’s 16- to 24-year-olds, the agency said the collection of those figures needed “to be further improved and optimized.”The bureau this year also stopped releasing surveys of consumer confidence, among the best barometers of households’ willingness to spend. Confidence rebounded modestly at the start of the year, but started to plummet in the spring. The government’s statistics office last announced the survey results for April, discontinuing a series it began 33 years ago.Instead of giving people less to worry about, the sudden removal of closely followed data has left some on Chinese social media wondering what they might be missing.Laurence Pan, 27, noticed that something was beginning to go awry in 2018 when customers at the international advertising agency in Beijing where he worked started to scale back budgets. Over the next few years, he hopped from one agency to another, but the caution from clients around spending was the same.He resigned from his last employer three months ago. Mr. Pan said that he had secured new jobs quickly in the past, but that he was struggling to find a position this time. He has applied for nearly 30 jobs since last month and has not received an offer. He said he was considering part-time work at a convenience store or a fast-food restaurant to make ends meet. With so many uncertainties, he has cut back on his spending.“Everyone is having a hard time now, and they have no money to spend,” he said. “This might be the most difficult time I’ve ever been through.”The Shanghai skyline. Consumers in China are holding back on spending, and businesses are reluctant to invest and create jobs. Alex Plavevski/EPA, via Shutterstock More