China Ties Weigh on US Brands

Commentary The pressure is on for the biggest U.S. brands, including Apple, Nike, Adidas, and Disney. On May 2, two leading congressmen demanded that the fashion brands confirm that their supply chains are untainted by slave labor in China. Sourcing from forced labor in the country’s Xinjiang region, where a genocide is underway, is now against U.S. law. Apple is so dependent on workers and consumers in China that on May 3, a Financial Times article called Apple a “Chinese company.” Apple has 54 stores in China, and its chief executive officer, Tim Cook, recently praised Apple’s side-by-side growth with the country as “symbiotic.” “After inking a secretive 2016 agreement to invest $275bn in China’s economy, workforce, and technological capabilities, the iPhone became a best-seller,” according to the article. “In reality, Apple is now as much a Chinese company as it is American.” The author noted the difficulty of extricating Apple from China by shifting production to other countries. “Even small shifts risk retaliation by Chinese overlords who might retaliate by turning Chinese consumers against Apple products.” At the same time, given the increasing public realization of the threat from the Chinese Communist Party (CCP), brand-conscious Apple managers are doing just that by reshoring manufacturing facilities to less controversial places like India, Vietnam, Malaysia, and Ireland. After a visit to California last month, Rep. Mike Gallagher (R-Wis.), who chairs the House Select Committee on the Chinese Communist Party, said that Apple and Disney face the greatest hurdles from inevitable future economic decoupling from China. “Apple’s at the heart of what is the most complex aspect of this competition, which is companies that have a massive presence in China are going have to deal with the fact that some form of selective economic decoupling is inevitable,” he said to Bloomberg. Companies linked to China that have customer bases in the United States—including Huawei, TikTok, Shein, Temu, Zoom, and Binance—are also distancing themselves from China or seeking loopholes. Lawmakers claim that China’s fashion companies exploit a “de minimus” loophole that waives U.S. tariffs on imports under $800 sold directly to consumers. Congress should close the loophole immediately. All purchasers of goods from China should pay the same high tariffs. The fashion companies queried this week by the congressmen about their China supply lines must answer questions about whether they use materials made with slave labor in Xinjiang. Lawmakers who demanded answers from the fashion companies include Gallagher and Rep. Raja Krishnamoorthi (D-Ill.), the committee’s ranking member. They are delving deeper into allegations made in congressional testimony from March that some U.S. companies are in violation of the 2021 Uyghur Forced Labor Prevention Act (UFLPA), which bans products of dubious provenance from Xinjiang. Unless companies can prove that their supply chains in the region are squeaky clean, they are in violation of the law, according to lawmakers. In an escalation against the fashion companies, the congressmen gave them a short deadline to provide information about their materials suppliers, supplier audit policies, and other supply chain practices. Gallagher, former Attorney General William Barr, and Sen. Marco Rubio (R-Fla.) have also been critical of The Walt Disney Company. Rubio wrote an open letter in 2020, signed by Gallagher and other lawmakers, criticizing Disney for apparently collaborating with the CCP, including by filming parts of the movie “Mulan” in Xinjiang. Despite the ongoing genocide, Disney apparently cooperated with Xinjiang’s CCP propaganda and security offices. The letter, which asked for further information about any cooperation with the CCP, read, “The decision to film parts of Mulan in the XUAR [Xinjiang Uyghur Autonomous Region], in cooperation with local security and propaganda elements, offers tacit legitimacy to these perpetrators of crimes that may warrant the designation of genocide.” U.S. and Chinese companies are finally feeling the heat for their unacceptable collaboration with the CCP to the point of normalizing its totalitarian practices in China and abroad. To stop the threat from Beijing to human rights, the United States and its allies are unfortunately forced to accelerate economic decoupling. While decoupling entails short-term risk to supply chains, and could cause higher prices to consumers, it will also increase jobs in the United States and among its allies. It will reindustrialize our economies, making supply chains more resilient in the long term. And doing nothing is even riskier. Limiting the economic control of the CCP is the best option in today’s increasingly illiberal geopolitical environment.

China Ties Weigh on US Brands

Commentary

The pressure is on for the biggest U.S. brands, including Apple, Nike, Adidas, and Disney.

On May 2, two leading congressmen demanded that the fashion brands confirm that their supply chains are untainted by slave labor in China. Sourcing from forced labor in the country’s Xinjiang region, where a genocide is underway, is now against U.S. law.

Apple is so dependent on workers and consumers in China that on May 3, a Financial Times article called Apple a “Chinese company.” Apple has 54 stores in China, and its chief executive officer, Tim Cook, recently praised Apple’s side-by-side growth with the country as “symbiotic.”

“After inking a secretive 2016 agreement to invest $275bn in China’s economy, workforce, and technological capabilities, the iPhone became a best-seller,” according to the article. “In reality, Apple is now as much a Chinese company as it is American.”

The author noted the difficulty of extricating Apple from China by shifting production to other countries. “Even small shifts risk retaliation by Chinese overlords who might retaliate by turning Chinese consumers against Apple products.”

At the same time, given the increasing public realization of the threat from the Chinese Communist Party (CCP), brand-conscious Apple managers are doing just that by reshoring manufacturing facilities to less controversial places like India, Vietnam, Malaysia, and Ireland.

After a visit to California last month, Rep. Mike Gallagher (R-Wis.), who chairs the House Select Committee on the Chinese Communist Party, said that Apple and Disney face the greatest hurdles from inevitable future economic decoupling from China.

“Apple’s at the heart of what is the most complex aspect of this competition, which is companies that have a massive presence in China are going have to deal with the fact that some form of selective economic decoupling is inevitable,” he said to Bloomberg.

Companies linked to China that have customer bases in the United States—including Huawei, TikTok, Shein, Temu, Zoom, and Binance—are also distancing themselves from China or seeking loopholes. Lawmakers claim that China’s fashion companies exploit a “de minimus” loophole that waives U.S. tariffs on imports under $800 sold directly to consumers.

Congress should close the loophole immediately. All purchasers of goods from China should pay the same high tariffs.

The fashion companies queried this week by the congressmen about their China supply lines must answer questions about whether they use materials made with slave labor in Xinjiang.

Lawmakers who demanded answers from the fashion companies include Gallagher and Rep. Raja Krishnamoorthi (D-Ill.), the committee’s ranking member.

They are delving deeper into allegations made in congressional testimony from March that some U.S. companies are in violation of the 2021 Uyghur Forced Labor Prevention Act (UFLPA), which bans products of dubious provenance from Xinjiang. Unless companies can prove that their supply chains in the region are squeaky clean, they are in violation of the law, according to lawmakers.

In an escalation against the fashion companies, the congressmen gave them a short deadline to provide information about their materials suppliers, supplier audit policies, and other supply chain practices.

Gallagher, former Attorney General William Barr, and Sen. Marco Rubio (R-Fla.) have also been critical of The Walt Disney Company. Rubio wrote an open letter in 2020, signed by Gallagher and other lawmakers, criticizing Disney for apparently collaborating with the CCP, including by filming parts of the movie “Mulan” in Xinjiang. Despite the ongoing genocide, Disney apparently cooperated with Xinjiang’s CCP propaganda and security offices.

The letter, which asked for further information about any cooperation with the CCP, read, “The decision to film parts of Mulan in the XUAR [Xinjiang Uyghur Autonomous Region], in cooperation with local security and propaganda elements, offers tacit legitimacy to these perpetrators of crimes that may warrant the designation of genocide.”

U.S. and Chinese companies are finally feeling the heat for their unacceptable collaboration with the CCP to the point of normalizing its totalitarian practices in China and abroad. To stop the threat from Beijing to human rights, the United States and its allies are unfortunately forced to accelerate economic decoupling.

While decoupling entails short-term risk to supply chains, and could cause higher prices to consumers, it will also increase jobs in the United States and among its allies. It will reindustrialize our economies, making supply chains more resilient in the long term. And doing nothing is even riskier. Limiting the economic control of the CCP is the best option in today’s increasingly illiberal geopolitical environment.