Cabin Fever

The Chinese government last week released ten new measures that herald a significant easing of the country’s strict ‘Zero Covid’ policies. For many Chinese citizens, it could mean a new lease on life. But what does it mean for businesses?

In the coming weeks and months, any companies with offices, retail stores or manufacturing operations in China need to be alert to a range of risks:

• Rising community cases: Community cases are expected to soar and could  significantly strain the medical system this winter. The government has announced it will accelerate vaccination of the elderly and build up ICU bed capacity across the country, two key areas in which China is seemingly underprepared. With test kits and medicine in short supply, multinationals should consider buying supplies overseas and shipping them for China-based employees to use ASAP. 

• A fearful public: Rising community cases are already infecting the workforce and forcing people to stay at home. Many Chinese remain highly fearful of Covid-19 and will be extremely cautious about catching it, which may further reduce workforce availability. This could impact everything from supply chains to retail operations. 

• Knee-jerk reactions: Regional and municipal governments still hold the power to order mass testing and lockdowns—and may do so again if the number of cases become uncontrollable. As we have seen this year, some of the most stringent lockdowns have occurred in major manufacturing hubs. We are currently in a key political moment between the 20th Party Congress and the Two Sessions in March 2023 – a period when officials at all levels are in line for promotions (or demotions)--and they will be wary of doing anything that jeopardizes their positions.

Given the looming uncertainties, companies must prepare for more frequent communications with relevant stakeholders about the changes on the ground. Global teams with experience in managing reopening after Covid-19 epidemics at a large scale could share this with their counterparts in China.

Trade presents an opportunity for the administration and Congress to work together, even in a highly polarized and partisan environment.

Bipartisan support remains for expired trade programs such as the Generalized System of Preferences (GSP) and Miscellaneous Tariff Bills (MTBs), as well as efforts to strengthen U.S. anti-dumping and countervailing duties (AD/CVD) laws.

Republicans will prioritize new trade agreements and opening new markets while the Biden administration will be looking to implement its "worker-centric" trade approach.

Most Republicans—and some Democrats—will want to jumpstart free trade negotiations to provide U.S. producers greater global market access after no new trade agreements were signed during the Biden administration’s first two years in office. But they will face pressures from both the right (Trump’s base) and the left (labor unions/environmentalists) skeptical of any trade liberalization. For their part, Democrats will be focused on reauthorization of Trade Adjustment Assistance (TAA).

House Republicans will likely:

• Intensify efforts to reauthorize the Trade Promotion Authority (TPA) to drive new trade agreements and open new markets.

• Remain focused on China as the driver of an aggressive U.S. trade policy.

• Continue efforts around greater scrutiny of outbound U.S. investments.

• Attempt to provide relief to U.S. businesses impacted by tariffs, such as through a more robust Section 301 exclusion process.

• Engage in bipartisan efforts to discourage discriminatory digital services taxes (DSTs) in the EU and elsewhere through the use of US trade remedies.

• Apply increased pressure on the administration to expand the scope of the Indo-Pacific Economic Framework (IPEF) to include market access.

Despite robust Republican oversight and investigations, possible appropriations action, and an active suite of agenda-setting legislative proposals, the Bipartisan Infrastructure Law and Inflation Reduction Act are expected to remain largely intact.

Republicans will likely:

• Use oversight and investigations to challenge administration officials and agency leadership on climate, environment, energy security and supply chain/China matters.

• Attempt to utilize the Congressional Review Act to repeal eligible regulations.

• Seek to use the appropriations process to restrict implementation of ESG and climate financial disclosure measures.

• Focus on energy security and affordability themes to bolster fossil fuel interests and cast enacted climate and energy measures to their advantage before the 2024 election.