Sec of State Blinken is finally heading to China for the first high-level visit of this administration. Bill Gates is going on his own tour of the Old Capital. Elon Musk was there. So was Jamie Dimon. This is how it will look now. The Fortune 50 get their own foreign policy — like the way the OG Dutch did.
And that’s the good news here, as we close out the first half of 2023. It looks like life will continue to be bearable for the Board of Director class. I wouldn’t expect the parade of celeb-CEOs to continue — a little symbolism goes a long way in Beijing. But the formulation that always existed between big, rootless MNCs and the CCPs shadowy councils has been updated or upgraded, and we all seem to be good with the split-supply chain approach.
Split Supply-Chains
Split supply chain is a nameless non-practice where giant MNCs maintain existing production capacity in China/SE Asia and accelerate their build-out of new capacity in places like Mexico or Texas. The big guys are segregating their US-bloc supply chain from the China-bloc / Non-US-bloc supply chain. You won’t find any press releases about this — it’s not official. Only the largest companies are doing it, and the drama has already happened in the offices of strategic planning and procurement. The biggest companies will have one supply chain for US-aligned markets that are observing sanctions, and another supply chain for the rest of the world. There will be plenty of overlap — at the beginning. For now, the priority will be avoiding UFLPA and other sanctioned material from contaminating the supply chains SE Asia.
Giant MNCs are in good shape.
So that’s where we stand ahead of the Blinken visit. US inflation seems to be under control (less pressure to remove tariffs), Wall Street types are in the process of recalibrating their plans for dominating a bipolar world market, and the US has done better than expected in the “coalition of the terrified” draft. Our relations with Europe haven’t been this good since we were handing out chocolate to refuge kids in Düsseldorf.
Entrepreneurs and SMEs – Control your enthusiasm.
The Royal CEOs have been given an audience at the reopened Zhongnanhai, so people who want to see improved relations are getting a little bit starry-eyed about Sec of State’s Blinken’s visit.
No. Just no. There have been no objective data points indicating that official relations have shown any sign of life AT ALL. Based on significant metrics, relations are actually getting worse. There’s still no “hotline” between militaries, the military posture off the coast of China is extremely tense, and Beijing’s diplomatic corps continues to slip over the line to belligerent ranting at the drop of a hat.
All the wrong people are talking.
The only life in the US-China discussion this year has been Sec of Treasury Yellin talking about the need to avoid decoupling and Jack Sullivan introducing the idea of “de-risking”. Now I’m hearing that Singapore is acting as the unofficial military hotline for de-escalating potential problems.
This is not the A-Team of a healthy trade relationship. The Sec of Treasury and Security Advisor are the apocalypse people of global trade. No one cares what they think when things are even a little bit positive. When is the last time markets moved because a senior security advisor weighed in on the US relationship with Canada or Spain? If Treasury and any of the security agencies are the most positive voice out there, it’s not encouraging. They’re traditional role in global trade is preventing disaster or limiting damage.
As for running the red phone through Singapore — yeah, great. It’s better than nothing. But I just hope all those “China experts” sticking it out in Shenzhen and Dongguan remember — the role of Singapore has always been “elder statesman”, with an emphasis on elder. If the US is communicating through Singapore, it may be a smart, effective move in the short term — but it will be seen in the region as an admission that we no longer have influence.
Losing Influence in SE Asia is part of the new Status Quo.
The new status quo is further supported by China’s increasing influence in SE Asia — at the US’ expense.
Everyone who wants to see relations — and thus their business — improve and stabilize is reading their own emotions into the upcoming visit of Sec of State Blinken. If this is the best news we have to work with, then we have a bigger problem than even I had realized.
Final Word
Economic life will continue no matter the state of relations between the US and China. But that doesn’t mean that we’re going back to “make it cheap in China, sell it expensive in the US” model. Entrepreneurs and SMEs are the most exposed to trade-war maneuvers, and you are just as likely to be the victim of friendly-fire US rules as China-regulations.
Don’t confuse signals. Happy CEOs and lower US inflation are BAD NEWS for US entrepreneurs and SMEs manufacturing in China.
You need a Plan B now more than ever.
Vietnam as a option