If the global economy is a football stadium filled with dominos arranged in intricate patterns, Utah is a cluster around the 20-yard line, deep on the U.S. side of the field.  From this cluster sprouts our state’s industries in lines that split and divide as they interconnect with the rest of the world. 

They may wend their way around the field, up into the stands, past the concessions and into the cheap seats, but eventually each of them makes a stop in the massive grouping on the far end of the stadium: China. 

Ties to the Middle Kingdom are more circuitous and less direct than they once might have been, and policy shifts keep tipping some dominoes and setting up others.  But despite all the building and falling, the relevance of the world’s second largest economy to Utah is bigger than ever.  This is the organic reality of a world that has turned out to be not so flat and transparent as we once expected but remains every bit as interconnected. 

With a presidential election now behind us, we are taking a fresh look at what trends in the U.S. – China relationship might tip dominoes in ways that affect Utah and its key industries.  This is the theme of a policy webinar we are conducting on December 10th and invite interested parties to join.  In the meantime, here are previews from our panelists and other contributors.

Miles Hansen, President & CEO, World Trade Center Utah and former White House national security official. For 40 years, the United States pursued a remarkably stable policy towards China--strong economic engagement on favorable terms for China to deliver low-cost products for Americans and economic development in China with the failed hope that as China modernized, it would moderate politically as well. 

Over the past five years, that policy has irreversibly ended, ushering in an era of increased U.S.-China competition, particularly on trade and investment issues.  And yet, with 1.4 billion people and the second largest economy in the world, China remains an incredibly important market for Utah companies.  China is Utah’s third largest trading partner and, in 2019, Utah exported almost $740 million in goods to China. Top Utah exports to China include computer and electronic products, chemicals, machinery and agricultural products. 

Given the tectonic shifts happening in the U.S.-China relationship and the wide ranging implications these dynamics have on trade and investment, it is essential that Utah companies understand that 1) a change in presidential administrations is not going to bring about a return to laissez faire trade policy with China and 2) there is going to be an increased risk premium with doing business in China. 

Nevertheless, the size of the Chinese market means that many businesses will continue to find ample incentive to source from or sell into China, but they must proceed with a risk mitigation strategy and a clear-eyed perspective of the costs and benefits.

Anna Ashton, Senior Director of Government Affairs at the U.S.-China Business Council. There is a remarkable amount of agreement between Democrats and Republicans about the need for the U.S. to take a stronger, more aggressive, more competitive approach to its relationship to China in the months and years ahead. 

There will be nuanced differences between how a Biden administration might approach China issues versus a Trump administration in terms of the overall flavor of a U.S. policy.  One area where there is likely to be a very different style—Biden has repeatedly said it is his intention to reassert America’s leadership in international institutions that we helped to found, to re-engage closely with our allies and trading partners around the world, and find common ground in terms of the challenges that we perceive ourselves to be facing with China. We can expect his approach to be more overtly multilateral.

Catherine Pan, Chair of the US-China Practice Group at Dorsey & Whitney LLP. The confrontation between the U.S. and China is not just a traditional “trade war” centered on tariffs.  More consequentially, the two countries are in the early stages of a tech and economic war—a race to develop or dominate emerging and fundamental technologies deemed critical to future innovation competitiveness, economic growth and national security interests. 

Many of these technologies are identified by China in its national strategic planning called “Made in China 2025” as key areas for China to compete and to dominate.  Companies in Utah’s important technology sectors will feel these pressures even if they themselves are not counting on China as a market, as they may face stiff, global competition as a result of these policies that promote Chinese competitors.

Justin Huff, Partner in Dorsey & Whitney’s National Security Law Group. Competition for foreign capital continues to be an important issue for many companies throughout the United States and Utah.  Importantly, recent changes in law necessitate that companies seeking foreign capital evaluate whether their transaction is subject to the mandatory government notification requirements established by the Committee on Foreign Investment in the United States, or CFIUS. 

As CFIUS carefully reviewed Chinese investments for reasons related to national security, we have watched the number of Chinese investments fall.  Intense scrutiny of Chinese investments will likely continue, as changes to the law were passed with near unanimity in both the House and the Senate.  

David Townsend, Of Counsel in Dorsey & Whitney’s International Trade Practice. One thing the Trump administration has demonstrated is the wide amount of latitude the executive branch has – legal, diplomatic, and political – to impose its policy preferences in the field of international trade.  The Trump administration moved U.S. trade policy in a dramatically different direction with China, but also with many other countries and regions.  With that said, an incoming Biden administration may find itself significantly more constrained by a narrowly divided Congress and the inertia of President Trump’s actions with respect to China.

In particular, a bipartisan consensus now exists for remaining tough on China. Several China-specific examples show areas where the Biden administration likely will not change course, at least not abruptly. The Biden administration is unlikely to take immediate action to remove U.S. Section 301 tariffs on Chinese imports, although it may consider doing so over the longer term.

Those tariffs affect a broad array of goods, including many industrial inputs used by Utah industries. In addition, Congress may force continued and even more aggressive action with respect to imports allegedly made from coerced labor in the Xinjiang region of China, which could have equally broad impacts on U.S. businesses.  Finally, reversing U.S. export control restraints on China’s technology sector, such as those imposed on Huawei, likely would be met by resistance in Congress and the agencies that have already implemented them.

Joyce Tan, Tax Partner, KPMG China. I have assisted several Utah companies, particularly direct sale companies, making investments into China during the past many years. Despite the US/China trade tension and Covid-19 pandemic which have disrupted supply chains in China, there is still a strong trend of foreign investment into China. 

A number of new tax policies and incentives have been published in recent years to encourage foreign investment and more are expected to come in future years. As tax administration has moved toward a post-management manner, formalities for making outbound remittance have been largely reduced or moved online which would highly improve the efficiency of profit repatriation management.

Foreign companies in China in recent years have increasingly adopted a "in China, for China" supply chain strategy with respect to manufacturing, sourcing and selling to meet the demand in the China market.  The concept has changed from “Made in China” to “Made for China”.  Given that close to one quarter of the global population lives in China, China is a huge market for Utah companies who are able to sell high quality and popular products into China.