In 2023, the CEO of Raytheon (known known as RTX) said talk of decoupling supply chains from China was unrealistic. “We can derisk, but we cannot decouple,” said Gregory Hayes, then CEO of the company. At the time, Hayes said Raytheon had “several thousand” Chinese suppliers, and told the Financial Times that, “we are not in a position to pull out of China the way we did out of Russia.”
Strategy Risks looked at five categories to gauge a company’s exposure to China. Other than the Regional Issues category mentioned above, the top three categories were Business Fundamentals, Partnerships and Politics, and Supply Chain.
The Business Fundamentals category measures the company’s financial exposure to China, as reported in sources such as annual reports, sales data, and other documents. This category is the most quantitative, and features a maximum score of 25.
The Partnerships & Politics category measures the company’s exposure to the Chinese government. This includes links with Chinese government entities and Beijing government officials, as well as exposure to related industry regulation. This is also scored at a maximum score of 25.
The Supply Chain category measures material inputs from China and assesses how dependent firms are on those inputs to make their final product. Strategy Risks determines scores by extracting inputs from large datasets and via manual research. Due to China’s centrality as a global manufacturing powerhouse, companies more exposed to supply chain disruption will get the maximum score, which is 15.
“With the new world of geopolitical risk, and with the heavy scrutiny that Congress but also governments in Europe, Japan and South Korea place on ties with China, we highly recommend that companies, as part of their normal due diligence practice and their vendor screening, start looking at China ties,” said Strategy Risks founder Isaac Stone Fish during a recent Insights in Tech Diplomacy podcast episode by the Krach Institute at Purdue University. “You should take these risks into account,” he said.
The reasons for taking those risks into account vary. But some include simple optics.
Earlier this month, the Coalition for a Prosperous America released a 16-page report called “Inside the Wire”. This report looks at Wall Street and Silicon Valley exposure to China companies. It’s not that it is a terrible idea to invest in Chinese companies. But those investments come with a price. For governments in particular, these entangled investments can create political risks and provide China the opportunity to use those investors to get free lobbying to influence state, local and even the federal government to make decisions in its favor.
These Ten U.S. Companies Are Overexposed To China
Ford is the winner, though it might not be a prize worth winning in this case. The number one U.S. corporation with the most exposure – and therefore dependency – on China partners and supply is the historic Detroit auto maker.
They’re not alone, though. Sitting in the top 10 of companies with an over-exposure to China includes all the big household names from Apple to Disney, Tesla to even Coca-Cola, according to a new index released on Monday by business intelligence consultancy Strategy Risks.
The companies appear in a new index compiled by Strategy Risks called the SR 250. The Index is a ranking of the country’s largest publicly traded companies by their China exposure. The scores — measured on a 0-100 scale — indicate the level of exposure, along with the ensuing risks. Higher scores, like those highlighted in the Strategy Risk chart above, mean a greater exposure to Chinese corporate partners, supply chains, and reputational risks during periods of heightened geopolitical tensions.
Ford, Bringing China to Mexico
Within the top 10 names, Ford seems like it would be at least a top three. Like Tesla, Ford was instrumental in convincing its autoparts partners in mainland China to move to Mexico in order to avoid tariffs.
In July, the USTR sent a 42-page report to Congress lamenting the rise of Chinese auto parts players moving south of the border. They said that companies, like Ford, might be okay with paying the low 2.5% duty on car imports if the car is not made with all North American parts. Imports are duty free if the parts are all sourced from the U.S. Canada and Mexico. But for the big auto companies and their China partners, a 2.5% tariff for not meeting the duty free requirement is nothing compared to the 27.5% tariff China auto and automotive parts face today if shipping from China.
Cummins: Why Mike Pence Hates Tariffs
Last week, former Vice President Mike Pence of Indiana lamented Trump’s tariff proposals, saying they will increase consumer prices. (A 2019 report published by the National Bureau of Economic Research found only slight consumer pass-through after one year of the Section 301 tariffs on China imports. They wrote: “a 20 percent tariff is associated with a 0.9 percent increase in the retail prices of affected household goods.”)
Cummins, which is headquartered in Indiana, is heavily enmeshed in China. They scored high in the “Regional Issues” category. The Regional Issues category measures a company’s exposure to sensitive political areas and human rights abuses. This category in the SR 250’s tries to measure a company’s links to forced labor practices.
Raytheon ‘Can’t Decouple’
In 2023, the CEO of Raytheon (known known as RTX) said talk of decoupling supply chains from China was unrealistic. “We can derisk, but we cannot decouple,” said Gregory Hayes, then CEO of the company. At the time, Hayes said Raytheon had “several thousand” Chinese suppliers, and told the Financial Times that, “we are not in a position to pull out of China the way we did out of Russia.”
Strategy Risks looked at five categories to gauge a company’s exposure to China. Other than the Regional Issues category mentioned above, the top three categories were Business Fundamentals, Partnerships and Politics, and Supply Chain.
The Business Fundamentals category measures the company’s financial exposure to China, as reported in sources such as annual reports, sales data, and other documents. This category is the most quantitative, and features a maximum score of 25.
The Partnerships & Politics category measures the company’s exposure to the Chinese government. This includes links with Chinese government entities and Beijing government officials, as well as exposure to related industry regulation. This is also scored at a maximum score of 25.
The Supply Chain category measures material inputs from China and assesses how dependent firms are on those inputs to make their final product. Strategy Risks determines scores by extracting inputs from large datasets and via manual research. Due to China’s centrality as a global manufacturing powerhouse, companies more exposed to supply chain disruption will get the maximum score, which is 15.
“With the new world of geopolitical risk, and with the heavy scrutiny that Congress but also governments in Europe, Japan and South Korea place on ties with China, we highly recommend that companies, as part of their normal due diligence practice and their vendor screening, start looking at China ties,” said Strategy Risks founder Isaac Stone Fish during a recent Insights in Tech Diplomacy podcast episode by the Krach Institute at Purdue University. “You should take these risks into account,” he said.
The reasons for taking those risks into account vary. But some include simple optics.
Earlier this month, the Coalition for a Prosperous America released a 16-page report called “Inside the Wire”. This report looks at Wall Street and Silicon Valley exposure to China companies. It’s not that it is a terrible idea to invest in Chinese companies. But those investments come with a price. For governments in particular, these entangled investments can create political risks and provide China the opportunity to use those investors to get free lobbying to influence state, local and even the federal government to make decisions in its favor.
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