A Profitable Partnership Under Stress: Why it makes sense to ratchet-down US-China trade tensions 1

This white paper is based on an extended research effort undertaken by the Hinrich Foundation, which included interviews with scores of MNC executives doing business in China, as well as an analysis of publicly available financial data for 22 MNCs with substantial business operations in China. Our objective is to provide a firmer factual basis for a discussion of the US-China economic relationship.

Executive Summary

  • The likelihood for a period of trade turbulence between the United States and China is greater than anytime in recent memory.
  • Despite rising trade tensions, US companies and China have grown increasingly dependent on each other through foreign direct investment.
  • US companies, attracted by China’s large consumer market, are now dependent on Chinese sales to meet their bottom lines.
  • Likewise, China needs foreign invested enterprises (FIEs) to continue developing the Chinese economy. New research suggests that FIEs have contributed 33% of China’s GDP and 27% of total employment in 2013.
  • This mutually beneficial partnership is at a critical inflection point. Questions are being raised in China about whether FDI continues to be as necessary as in the past, and antiglobalization sentiments are rising in the US.
  • This paper concludes that the partnership between US companies and China has been on balance immensely profitable for both parties – and needs to be preserved moving forward.

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Stephen Olson – Research Fellow at the Hinrich Foundation.

Lauren Kyger – Research Associate at the Hinrich Foundation.