Chamber Panel Says Companies Doing Business in China Are Being Forced to Choose Sides

A former U.S. trade representative and a former deputy national security adviser agree that companies that do business in China are stuck between a rock and a hard place, as they will anger China if they disavow abuses in Xinjiang or Hong Kong, but could break U.S. law if they make clothes with Xinjiang cotton.

Stephen Hadley, a principal at the consulting firm Rice, Hadley, Gates & Manuel, said, "China wants to force them to choose as does the United States." He said whatever choice they make will either alienate China, or alienate either the U.S. Congress or public sentiment in the U.S.

"They have to keep their head down," he said. He said that companies may not be able to thread this needle. "And one of the things I think us companies need to do is to monitor the situation, the business environment and the political environment in China. And they need to have contingency plans [so] if things really get bad they can move their people out, they can move their operations … and diversify in the region out of China."

Former USTR Charlene Barshefsky, who also spoke on a panel at a U.S. Chamber of Commerce event May 19, said companies also have to worry about their own staff, millennials in particular, who have expectations of what the company stands for. She said that companies need to have sophisticated communication strategies in place in case it's revealed that they have forced labor in their supply chains. She said it would be wise to add production outside of China, as well. "Even if there’s a bit of redundancy that needs to be built in, even if there's some increase in cost."

Hadley said the Biden administration wants to get allied countries to buy into a China strategy it and Congress are developing. "Alone, we do not have enough weight to change China’s behavior," he said.

Panel moderator and Carlyle Group CEO Kewsong Lee asked Barshefsky if the U.S. can really count on Europe to coordinate with it on China.

"Working with friends and allies is not easy," she replied. "You can be close friends and have significantly different [perspectives] with respect to certain interests you hold, you’re under different pressures, different politics. Even with the best intention on the behalf of all parties, that cooperation falls short with respect to goals."

Barshefsky said that Europe has a higher export dependency on China than the U.S. does, especially Germany; Europe's threat perception of China is different from America's, since it is not a player in the Pacific the way America is. Some countries in Southern Europe are getting helpful infrastructure investments from China, she noted.

The U.S. is concerned about its standing as a superpower in relation to China, and Barshefsky said, "Europe is not going to fight with China in order to preserve the U.S.’ s unique position in the world."

But, arguing on the side of cooperation, she said, Europe is very disturbed by human rights abuses in China; Europe is also affected by Chinese mercantilism, and European politicians also recognize that, like the U.S., it is not able to get China to change its policy if it's the only one on the other side of the table.

"Europe will end up doing a balancing act," she said.