America’s top brands sweat over next step in trade war
America’s corporate bosses could be excused if they don’t agree with President Donald Trump’s boasts that a trade war is “easy to win.” They can just reflect on the levers of pain China pulled against South Korean-owned businesses last year to imagine a state-nudged boycott against Starbucks or shutdown of Nike’s factories.
China vows to retaliate against all U.S. tariffs but hasn’t announced a response to Trump’s proposal to put duties on another $200 billion in Chinese imports next month. Since that’s more than the value of all U.S. exports to China, the Asian nation will need more than tit-for-tat tariffs to punch back.
If China employs a similar strategy to the one used when its neighbor installed a missile defense system — shuttering stores and factories owned by South Korean companies and stoking boycotts — a slew of U.S. brands could pay dearly. That’s because China is both an essential supplier and also the biggest growth market for many U.S. companies.
Just last year, China showed that it wasn’t afraid to poke Nike when a program on state-run television criticized it for false advertising. That’s troubling for the world’s largest sports brand because consistent growth in China stabilized Nike Inc. when it struggled to fend off competition in the U.S. Revenue in China surged 21 percent in the past year to $5.13 billion, growing to 14 percent of Nike’s total sales. Meanwhile, revenue in North America declined about 2 percent. And China is a major supplier, too, producing about one-fifth of its goods.
The coffee chain counts the U.S. and China as its two key markets. Last year, China was “a standout,” posting 7 percent same-store sales growth, Chief Executive Officer Kevin Johnson said. Starbucks Corp. expects strength to continue with an accelerated expansion plan that will add 600 stores a year to hit 6,000 by 2022. But there are already signs of weakness in the country, with sales at existing stores declining 2 percent last quarter.
Starbucks is also more exposed than other U.S. restaurant chains because it owns most of its stores in the country, rather than selling franchise rights. But that may also shield it from a backlash because it’s seen as a good employer and founder Howard Schultz travels to the region often for public events.
(Read more: Bloomberg)