HONG KONG (Reuters Breakingviews) - Sino-American trade tensions could hit U.S. stocks from another angle. Chinese state media published commentary this week suggesting that heavyweights doing business in the People’s Republic, including Intel and Caterpillar, may be targeted for retaliation. The ability to flog them financially is constrained by domestic economic realities, but expansion plans could be curbed.
Rhetoric has been ratcheting up again. The Chinese Communist Party has long used the allure of its growing consumption power, which contributed nearly 60 percent of GDP in 2017, as both carrot and stick. Now the stick is being brandished at listed American firms.
Consumer brands like Apple and Starbucks are accustomed to being in state media’s crosshairs. Yet China doesn’t want to chase them away. Corporate America is a big source of technology transfer, willingly or not, and delivers economic benefits too. A study by Michael Enright of the Hinrich Foundation found the total GDP impact of U.S. investment was 13 times the amount of profit American companies earn because of what trickles down to local suppliers and employees.
The market has certainly reciprocated for some. Starbucks dominates the Chinese market, and reckons it can double the number of cafes to 6,000 by 2022, and triple the revenue they generate, even as it closes American locations. Apple and Ford have experienced slower growth lately and face intensifying competition, but are still minting billions in China for shareholders.
Any reprisals probably would have a limited effect on the Dow Jones Industrial Average and other stock indexes. Though Apple generates about a fifth of its top line in China, listed U.S. companies overall find only about 4 percent of their revenue in the People’s Republic, according to Morgan Stanley research. And it’s far-fetched to think China will stop buying Boeing aircraft or Intel chips.
It could nevertheless become harder for these companies to keep growing in China, much less win market share, because strain looks here to stay. Trump’s anti-China policy may be sloppily executed, but his reaction reflects a deep bipartisan distrust. Chinese propaganda, meanwhile, has raised a new generation to be equally wary of U.S. intentions. The market should get used to a new, hostile normal.
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