Let’s first stipulate the two reasons why thousands of American companies source products and services in China: lower labor costs, and the expertise to build or develop products can’t be found in the U.S.

And outsource we have. Cheap labor, a sophisticated manufacturing ecosystem, and Chinese leadership that caters to the needs of American brands and manufacturers have compelled U.S. companies to invest billions of dollars every year in China’s production ecosystem, its workforce, and in its communities.

A decade ago, a move to China was an easy business decision. Today, not so much. As Harry Moser and others have pointed out, the cost difference of operating in China vs. the U.S. has moderated. And while it still can be hard to find the right mix of production capabilities and skills onshore, America’s tech-fueled manufacturing commons is improving.

Other variables complicate a China engagement. Today we care about where products engineered and designed in the U.S. are made. Offshore manufacturing is often at odds with brand promises companies make to their customers. And corporate investments in Chinese communities, against the backdrop of middle-class struggles and the hollowing out of America’s rural economies, are tougher pills to swallow.

And now a new complication threatens Chinese engagements. Consider the strident language in the 2021 Report to Congress of the U.S.-China Security Review Commission, authored by the bipartisan panel charged with reporting on China’s economy and ambitions:

“China’s strengths and the threats it presents to U.S. interests are considerable. . . . At stake in this clash of identities and sovereignty is the safety and security of the United States and its partners, friends, and allies. The CCP is a long-term, consequential, menacing adversary determined to end the economic and political freedoms that have served as the foundation for security and prosperity for billions of people.”

Today, companies evaluating a business engagement in China are faced with the prospect of partnering with a “menacing adversary.”

One outcome is that companies will now run headlong into growing calls to limit not only public sector engagements with China — the diplomatic boycott of the Winter Olympic Games in Beijing seems only a start — but increasingly, business-related ties.

Robert Kuttner’s “Time to Limit U.S. investment in China” in The American Prospect provides a clue.

Kuttner notes: “Among its 15 priority recommendations, the report calls for controls on U.S. private investment in China, as well as creation of a new government authority that could review and block investments harmful to the national security. It faulted the Commerce Department for failing to perform this function as required under existing law.”

The language is precise — limits on U.S. private investment and those harmful to national security — and the implication is pretty straightforward: Investments by U.S. firms in China’s production ecosystem run counter to America’s national interest.

Companies should take note: Engagements in China may soon be filtered by discerning customers; a populist, nationalist movement in the U.S.; and government regulators. Voices in the West have been speculating that China is poised to accelerate the “decoupling” of the world’s two largest economies. There are signs today that America may lead the effort.

Revisiting U.S. options may never be more important.

Bart Taylor is publisher of CompanyWeek. Email him at btaylor@companyweek.com.

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