Complex Issues Affecting U.S.-China Relations Pose Risks for Corporations

From imported cotton to TikTok, a host of contentious issues continue to complicate relations between the United States and China. The disputes also present thorny risks for corporations seeking to expand their operations or simply avoid costly enforcement actions. Here are a few of the more notable topics worth monitoring for potential effects on big business.

Forced Labor, Thwarted IPOs, and U.S. Bans

 Founded in China in 2012 but now headquartered in Singapore, online retailer and fast-fashion behemoth Shein confidentially filed to go public in the U.S. in November 2023. Hopes for a mammoth initial public offering quickly fizzled when the company – and specifically its use of cotton – landed in the crosshairs of U.S. lawmakers and Chinese authorities. Politicians in Washington have demanded answers about Shein’s supply chain and the possibility that the company uses cotton from Xinjiang processed by forced Uyghur laborers.

Meanwhile, Chinese authorities are also watching to ensure that Shein and other companies with substantial operations in China toe the line with Beijing’s preferred messaging. The Chinese government won’t hesitate to freeze out companies that back down in the face of criticism of its actions in Xinjiang. (For evidence of that, just ask retailer H&M.)

Concerns about forced labor in China have also affected the operations of automobile manufacturers BMW, Jaguar Land Rover, and Volkswagen. According to a May 20 report released by Senate Finance Committee Chair Ron Wyden of Oregon, the three automakers sourced parts from a company placed on a ban list over its alleged links to forced labor in China. Wyden said automakers’ self-policing is “clearly not doing the job,” recommending U.S. Customs and Border Protection get involved to help enforce U.S. law blocking the import of goods made with forced labor.

Earlier in May, the U.S. announced that it would ban imports from an additional 26 Chinese textile companies over their alleged ties to forced labor. That followed U.S. industry complaints about unfair competition.

Trade Wars and the Status of Taiwan

 Until recently, many companies’ top supply chain concerns involved finding reliable sources for products at the lowest cost. An abundance of factories with cheap parts suppliers and raw materials drew them to China.

Today, however, companies are worrying more about the resilience of their supply chains when facing geopolitical disruptions. What happens if U.S. policymakers impose new tariffs on Chinese products, for instance? Companies also must consider the looming specter of war between the two nations considering China’s claims to ownership of Taiwan.

Chinese Companies Rebranding

With the Biden administration taking a harder turn against Chinese business interests, what’s a Chinese company to do? Some have decided their best play is to no longer be Chinese companies.

These companies are rebranding themselves as new entities in new locales. Some of them are taking up residence inside the United States. As a recent Wall Street Journal article highlighted, one such company, Hesai Group, now calls itself American Lidar after shifting its headquarters to Michigan.

Hesai currently sits on a list of companies flagged by the Department of Defense as Chinese military entities operating in the U.S. American Lidar, however, does not. Not surprisingly, U.S. regulators don’t take kindly to a strategy designed to circumvent such a designation.

The TikTok Affair

Popular social media platform TikTok has found itself embroiled in the sniping between the two geopolitical powers. Currently, it remains under the control of ByteDance, a Chinese company. A new, ballyhooed law would require TikTok’s owner to sell the app. Alternatively, TikTok would face a ban in the U.S.

TikTok is fighting back with a lawsuit that asserts the federal government’s ban constitutes a First Amendment violation. Moreover, the social media app claims logistical hurdles and the required timeline of the sale aren’t reasonable.

Thousands of American teenagers and budding influencers now await a decision on TikTok’s future.

Audit Deficiencies

Finally, there is the ongoing dispute between regulatory authorities in the two countries over audit standards.

It took the Public Company Accounting Oversight Board more than a decade to gain access to auditors’ records from their examinations of Chinese companies that are listed in the U.S. Beijing’s stonewalling ended after it was made known that approximately 200 China-based companies were facing expulsion from U.S. stock exchanges. Once the PCAOB did get a chance to review the audits, the board deemed the work to be riddled with deficiencies.

In response to the PCAOB’s verdict, the China Securities Regulatory Commission has hinted at a willingness to cooperate on ratcheting up its audit standards. Given the heightened tensions between the U.S. and China, that sounds like progress.