China, the second largest economy after the United States, relies upon a new form of economics, labeled as authoritarian capitalism. Currently, the U.S. and China are dealing with many trade disputes, and this is pushing the United States to move away from the established multilateral trading system created by the U.S at the end of World War II and towards bilateral trade approaches. Bilateral trade and investment linkages are a central framework for the new emerging Asia-Pacific business and economic framework. China-U.S. trade and investment linkages have expanded significantly during the last 40 years and are directly impacting U.S. trade and investment linkages to other countries in Asia. United States-China merchandise trade is estimated to exceed $600 billion in favor of the Chinese economy and represents a significant U.S. trade deficit. Moreover, China holds over $1 trillion of U.S. Treasury certificates.
The Chinese economy is in between free markets and state control. China’s industrial policies are centrally designed to protect Chinese firms and, especially, state-owned enterprises. The Chinese government provides significant subsidies as well as low-cost loans to Chinese firms and places protective barriers of discrimination against foreign multinationals. The “Made in China 2025” campaign represents another expanded Chinese program in favor of their enterprises and significantly disadvantages all other Multinationals.
The Chinese are coming! They have already arrived to be the second-largest economy after the United States. The stock of Chinese direct foreign investments in the United States is estimated to be at $50 billion and is much smaller than other direct foreign investments coming from other Organization for Economic Cooperation and Development (OECD) countries. By contrast, the U.S. firms’ direct foreign investment in China is estimated to exceed $100 billion. These metrics, nevertheless, do not capture the impact of direct foreign investments in the U.S. market that are made through tax haven locations, and the estimates of Chinese direct foreign investment could be two to three times higher. The U.S. Congress is concerned that the ability of the U.S. Committee on Foreign Investment (USCFI) to protect U.S. and strategic national security interests needs to be enhanced.
Central to the Trump administration’s policies is the protection of U.S. firms against the intrusive policies and highly protective industrial policies of the Chinese. The theft of U.S. intellectual property and counterfeiting by Chinese firms, whether state-owned or publically traded is extensive and has been estimated to exceed one-third of a trillion dollars annually. According to the U.S. administration, the Chinese are active in economic espionage and the theft of U.S. proprietary information. The U.S. Department of Justice (DOJ) indicates the majority of cases involving economic espionage and stolen trade secrets relates to Chinese firms.
To recap: the demand of the current U.S. administration to China is to reverse its economic policies that directly discriminate against US multinationals. Moreover, the theft of technology and trade secrets must be reversed or arrested. Seen from this framework, the Chinese economy’s emergence as the second largest economy represents challenges to the traditionally dominant U.S. global position.
US-Japanese trade and investments linkages
The Japan-U.S. trade forthcoming negotiations highlight, again, the importance of the U.S.-Japan trade and investment linkages brought about following World War II. The current United States administration’s withdrawal from the proposed Trans-Pacific Partnership (TPP) during 2017 represents a watershed in the Asia-Pacific economies and Japanese-US trade encounters. The scope of U.S.-Japanese trade investment linkages includes many business and economic concerns; however, automotive/automobile trade is central to our existing economic linkages with Japan and will shape our future trade linkages. Trade in services and agriculture/food is equally significant. Currently, Japan’s preference for Asia-centric trade negotiations gives significant advantages to Japanese firms and at the same time disadvantages to U.S. companies.
In 2018, the United States launched a Section 232 tariff imposed on Japanese steel and aluminum. Japan is currently the third largest global economy after the United States and China and the fourth-largest U.S. trading partner; however, Japan is the second-largest foreign holder of U.S. debts, and the stock of foreign investments by Japan is estimated to exceed $400 billion. These investments are concentrated in manufacturing and according to the Japanese automotive association, Japanese investments in the American car industry and the supporting value-added chains add an estimated 350,000 jobs. U.S. imports from Japan in the automotive sector are estimated at $175 billion, resulting in a deficit set at $70 million in goods imported. U.S. direct foreign investment in Japan is estimated at $130 billion and is concentrated in financial services and insurance.
Japanese non-tariff barriers in the car industry are another area of concern, and they are not likely to be reversed soon given the high propensity of Japanese consumers to favor Japanese cars over U.S. models. The highly protective agricultural sector of Japan presents equal concerns. Tariffs on U.S. beef are estimated to exceed 38%, and with the new trade linkages between Japan and Australia and Canada, U.S. firms will be at a disadvantage. U.S. agricultural exporters will continue to suffer and the unfolding situation will not work in favor of U.S. farming communities. A bright spot for U.S. trade relations is the service sector, estimated to be at $50 billion and is in a state of surplus in favor of the United States.
Finally, the lingering issue that relates to Japanese currency is equally central today as it has been before, which usually results in an undervalued Yen against the U.S. Dollar. The Abenomics recent stimulus monetary program has partially contributed to the lowering of the Japanese currency against the U.S. Dollar without the need for the Japanese Central Bank to intervene in foreign exchange markets.
The push away from a multilateral trading system toward the current U.S. administration favoring a bilateral United States/Asia-centric trade and investment framework is putting the United States at some potential disadvantages and is not likely to increase U.S. firms’ competitiveness within Asia and across the global economy given the extensive value-added supply chain linkages that stretch across Asia-Pacific economies and around the world.
As this publication wings its way to you during the middle of your summer/winter term (depending on the side of the equator on which you reside), we are hoping your intellectual endeavors are benefitting from some lessening of the pressure involved in the day-to-day scholarly pursuits of lecturing and grading, and you are open to some new inspiration in the form of our current offerings.
First up is “Technological Innovation and Brand Management: The Japanese Watch Industry Since the 1990s,” by Pierre-Yves Donzé of Osaka University and David Borel of Centredoc – Business Intelligence and Technology Monitoring, which posits that the heart of branding can be found mainly in innovation. Our second offering is “Social and Environmental Sustainability, Host Country Characteristics and the Mediating Effect of Improved Working Practices: Evidence from Multinational Corporations in Malaysia,” by Syed Ali Fazal, Abdullah Al Mamun, and Sazali Abdul Wahab of Universiti Malaysia, and Muhammad Mohiuddin of Thompson Rivers University. This is an in-depth look at the effects of cultural factors on global corporate sustainability in Malaysia.
Third, we offer “The Influence of Generational Diversity Management and Leader-Member Exchange on Innovative Work Behaviors Mediated by Employee Engagement,” by Carla Hapsari, Jol Stoffers, and Agus Gunawan of Maastricht School of Management. Additional affiliation for both Professors Stoffers and Gunawan may be found with the article. Their article is a detailed exploration of generational differences at Indonesia’s largest telecommunications company, focusing mainly on Baby Boomers, Gen X, and Gen Y. Their findings also have implications for our Millennial and Gen Z cohorts. Our final selection this quarter is “Overconfidence Mediates how Perception of Past Portfolio Returns Affects Investment Behaviors,” by Mohammad Tariqul Islam Khan, Siow-Hooi Tan, and Lee-Lee Chong of Multimedia University.” It suggests that the negative effects of overconfidence may be predictive of future bad investment outcomes.
We at the Journal of Asia-Pacific Business are hopeful that your own scholarly outcomes are greatly received. We, as always, are extremely grateful to our readers, submitters, and reviewers for striving for scholarly and academic excellence, which we are happy to humbly support.