General Motors, Microsoft Shrug Off Trump's Cash Offer to Quit China for U.S.

In the latest flashpoint for U.S.-Chinese diplomatic relations, President Donald Trump is moving to incentivize American firms to shift their operations out of China. But the response from major firms so far has been dismissive or muted.

After moves made to ban Chinese tech companies such as TikTok, WeChat and Huawei in the U.S., Trump has widened his scope to those American companies outsourcing work and production.

Dangling the promise of tax credits in a speech, he vowed to create 10 million jobs in 10 months, saying "we will end our reliance on China." Trump also threatened to remove government contracts from firms continuing to outsource work to China.

Trump said: "We will create tax credits for companies that bring jobs from China back to America. We built the greatest economy in the history of the world and now I have to do it again."

As simple as Trump made this sound, how it will work in practice is in question. For foreign businesses seeking to operate in China, it is often required that they enter joint ventures (JVs) with local firms.

This is partly because U.S. companies have to navigate restrictions to opening up in China, and establishing a JV with a local partner is a helpful method for this.

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Those Western businesses that have operations in China, such as General Motors, already work through established JVs, have local distribution channels, and repatriate their profits to the U.S.

When Newsweek asked General Motors if it would consider moving operations out of China for a tax break, the company said in an emailed statement that Trump's offer "doesn't apply to GM."

"Our operations there are joint ventures with local companies that overwhelmingly produce vehicles for the domestic Chinese market. We do repatriate the equity income we earn in China back to the United States, where it is subject to tax."

The technology giant Microsoft also has a substantial presence in China and 17,000 partners in the country. Asked about Trump's offer, a Microsoft spokesman told Newsweek in a statement: "We have nothing to share."

Legal experts on joint ventures said it is not clear how Trump's pledge would play out.

"I don't think anyone would claim to understand what is actually being proposed or say with any certainty that it will be enacted," Rupert Weston, a U.K.-based partner at law firm Burges Salmon LLP, told Newsweek.

"It's going to be wholly dependent upon the terms and the nature of the joint venture which the U.S. corporates have in China, and what exactly the U.S. administration imposes.

"The point that GM is making is that they pay their taxes when they bring the profits into the U.S.

"There are windows when profits from overseas businesses can be repatriated to the U.S. on beneficial terms (in terms of tax), and when that happens there's a great rush to do that."

Weston added: "Who knows what Donald Trump is thinking? If you're servicing a local market it makes perfect sense to be in that market, as with GM."

Weston posited that if this policy is brought into effect, U.S. multinationals will weigh the cost of moving production out of China, against the potential tax incentives proposed.

If you are servicing a local market it is unlikely to make sense to repatriate production back to the U.S. "It may well be that the U.S. will look to impose higher tax tariffs on repatriated cash from China," Weston said.

A plethora of large U.S. companies other than GM and Microsoft make products and have operations in China.

Newsweek didn't receive a response to requests for comment from Walgreens Boots Alliance, Boeing, Starbucks, Apple, Procter & Gamble, and Caterpillar.

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U.S. President Donald Trump arrives to deliver a speech to workers at a Whirlpool manufacturing facility on August 06, 2020 in Clyde, Ohio. Whirlpool is the last remaining major appliance company headquartered in the United States. With more than 3,000 employees, the Clyde facility is one of the world's largest home washing machine plants, producing more than 20,000 machines a day. Scott Olson/Getty Images
General Motors, Microsoft Shrug Off Trump's Cash Offer to Quit China for U.S. | Business