Moving Out Of ChinaCNN Business did a story today, entitled Mid-sized American companies are already moving away from China. The story is based on an Umpqua Bank survey of 550 executives at companies with between $10 and $500 million in annual sales. The survey was released today and it revealed the following:

1. “Midsized US companies are realizing that they need to diversify away from China and have already begun to take action.”

2. “Middle-market companies have started to shift their supply chains to other parts of Asia and are selling more to other countries to make up what they can’t sell to China.”

3. “More than half said they are looking to diversify their supply chains — both domestically and to other international markets.”

4. “Nearly 20% . . . are searching for new customers in other markets., primarily in Europe, and other parts of Asia, Latin America and the United States.”

5. “The decision to diversify beyond China is less about politics and the trade war and related more to diminishing advantages of making products in China.”

6. “There have been more hurdles in place with China. It has taken longer to get paid, too. China had already made things more complicated, but now the trade war is heightening things.”

7.  “Many mid-size companies said they are eager to embrace Europe as a bigger customer to help offset lost sales from China.”

This survey essentially vindicates what we have been saying on here for more than a year regarding both what we have been seeing among our own client base (which is largely mid-market companies), what we have done by growing our footprint in Europe and in Asian countries beyond China, and with what we have been recommending companies do.Since the beginning of US-China trade negotiations, we have been relentlessly negative about relations between the United States and China and also as between the EU and China (more on that below). We have consistently described relations between China and the West as being on a “straight line decline.” In our October 2018 piece, China, the United States and the New Normal, we started calling the bad relations between China and the United States the “new normal.” That same month, we titled a post Would the Last Company Manufacturing in China Please Turn Off the Lights, in which we mentioned “it does sometimes feel as though within three years nobody will be making widgets in China anymore.”

In April of this year, the Wall Street Journal quoted me in their cover story, Trade Deal Alone Won’t Fix Strained US-China Business Relations, saying the following:

“There is no way any deal between China and the US will cause everyone on both sides to say, ‘We were just kidding,’” said Dan Harris, managing partner at Harris Bricken, a law firm that specializes in investment with China. “The tariffs and the arrests and the threats and the heightened risk have impacted companies and that will not go away.”

Then on May 4, 2019 (one day before President Trump’s May 5 tariff tweet that changed everything), we wrote The US-China Trade War: Winter is Coming, on how no matter what happens in the US-China trade war, things will NOT revert back to the way they had been for foreign companies:

The above is but an introduction to what we see as China’s diminished future for foreign companies. Since pretty much the inception of the US-China trade war we have been saying that we do not see its end because we have always seen it as more than a trade war. At first, we saw the US tariffs as an effort by the United States to get China to “open up” and “act right” on things like the internet and IP. But because we did not see China changing on these things, we did not see the trade war ending. Vice-President Pence’s speech on China earlier this week has only reinforced for me that the trade war between China and the US will not be ending any time soon, if ever. The New York Times has called that speech the Portent of a New Cold War between the United States and China and China’s own Global Times wrote an article entitled, Pence speech shows Washington’s tougher policy on China. Don’t blame us. We are just the messengers. Things are getting very tough between China and the United States right now and the trade war is just a symptom of that, not the disease.

The United States is aggressively and unabashedly is doing what it can to isolate China and to remove it from the world of international trade. The new free trade agreement between the United States and Canada is further proof of this as it essentially blocks Canada and Mexico from engaging in free trade with China. See What Trump’s new trade pact signals about China. Word is that shutting out China is going to become a regular thing in all new US trade agreements. See US Commerce’s Ross eyes anti-China ‘poison pill’ for new trade deals. Will the EU and Japan and Latin America play ball on this? I predict that most if not all of them will.

Since we wrote the above — heck, just in the last month, things have gone from bad to worse to really terrible. First there was the US Senate voting unanimously to condemn China over Hong Kong and the House of Representatives passing that bill 412 to 1. Trump signed it and China has begun to retaliate by attacking NGOs in China and threatening to make the lives of US diplomats miserable. Then just yesterday, in an event that has already made China far far angrier, the US Congress condemned China for its treatment of its Uighur minority population. The EU is slowly but surely turning on China as well. See What’s ahead for the new EU commission as it addresses the imbalances in China ties and New EU chief Ursula von der Leyen takes helm amid growing European suspicion of China. Our EU clients are decoupling from China nearly as fast as our American clients.

And yet, many Western companies — indeed, many of our own clients — continue to take a “wait and see” approach to China, as though things may get better. They won’t and you need to start acting accordingly. We recognize that for some, acting accordingly will mean no changes to their China footprint. For others, it will mean cutting all ties as quickly as possible. For most, it will be something in between those two poles .

In future posts, we will discuss how we see China stepping up its retaliation against Western companies and what we think Western companies should do to reduce their reliance on China as what constitutes the New Normal continues to worsen.

Stay tuned.

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.