Reshma Kapadia

President Donald Trump and Chinese leader Xi Jinping's truce and talk of stability aren't giving U.S. companies operating in China much solace. The annual survey by the U.S.-China Business Council released Wednesday found that 80% of companies think the business climate hasn't improved or has deteriorated. It also reflected increased worries about eroding U.S. competitiveness.

Among the 175 U.S. companies surveyed by the group in February and March, U.S.-China relations -- with tariffs, export controls, and investment restrictions -- topped the list of concerns, with more companies this year citing them as an issue than a year ago, despite the detente. Only 13% of the companies surveyed said the improvement in ties was sufficient to change investment plans; 87% said it wasn't enough or that they remain in wait-and-see mode.

Getting caught between U.S. export controls and China's new regime of restrictions and countermeasures puts U.S. companies in a difficult position. More than half of respondents said they were losing sales due to policy restrictions and uncertainty, while 40% were losing sales from U.S. tariffs, and 30% from rising nationalism.

Geopolitics will continue to loom over U.S. companies. But the biggest reported threat to profitability is Chinese competition, with 65% reporting that as a major challenge -- not just locally but also increasingly abroad.

Chinese companies have been improving their capabilities since 2019 and are no longer just competitive because of their lower prices. About 60% of companies noted their Chinese rivals' ability to leverage local businesses and ecosystems, speed to market, and cater products to local preferences. China's push for self-reliance and encouragement of domestic firms to buy Chinese-made products is also hurting U.S. market share and profitability.

Almost two-thirds of U.S. companies said they expect Chinese rivals to gain a significant amount of market share in the country within five years, and 56% expect Chinese companies to erode their global market share beyond five years.

That's a big risk for what has been a moneymaking operation for American companies. Even now, 92% of companies surveyed said their Chinese operations were profitable last year, an improvement from the past three years. And 84% expect revenue this year to be stable or higher.

That helps explain why U.S. companies are staying put in China despite the increased competition and geopolitical risks. The prevailing view has been that U.S. companies are staying in China to tap the country's consumers.

But Kyle Sullivan, vice president of business advisory services at the U.S.-China Business Council, says members increasingly see a presence there as critical for their global competitiveness. They can reap the benefits of China's economies of scale and efficient supply chains, while also learning from China as it becomes not just a manufacturing hub but also a center of innovation.

Meanwhile, companies are also trying to reduce their reliance on China but running into challenges. Over a third of companies were impacted by China's restrictions on rare-earth and magnet exports -- the source of an escalation in tensions between the U.S. and China last year.

Some of these materials are still nearly unobtainable, with autos and logistics companies feeling the biggest fallout from the restrictions. Almost half of the 38 affected companies said they had tried to find alternative suppliers but failed.

The survey also found a notable pickup in companies diversifying their supply chains, with about 30% reporting they were doing so. But despite the Trump administration's efforts to woo some of that manufacturing home, only 14% of companies reported increasing production in the U.S.

U.S. companies will get two data points on how the relationship is evolving in the coming months. The first will be the state of tariffs. The U.S. Trade Representative's Office concluded one Section 301 investigation into forced labor, prop osing 10% to 12.5% tariffs on 60 economies, which are expected to take effect mid-July. Another probe related to excess capacity is expected to be completed soon, paving the way for more tariffs, including on China.

The probes are intended to impose tariffs to rebuild the levies the Supreme Court struck down in February. It isn't clear if it will restart a trade fight with China. Other irritants persist, including recent efforts to increase restrictions on Chinese companies, such as putting well-known firms like BYD and Alibaba on the Defense Department's restrictions list.

U.S.-China Business Council officials are now looking to Chinese leader Xi Jinping's U.S. visit in September for signs that they can take more confidence in the truce. Also on companies' wish lists are expanded market access in China and reassurances from Xi on foreign investment amid Beijing's growing regime of countermeasures and restrictions.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 10, 2026 16:36 ET (20:36 GMT)

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