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Wednesday, April 14, 2021
Geopolitical Frictions Create New 'McCarthyism' in the Business World
ANBOUND

The Xinjiang cotton issue has been continuously brewing worldwide. On the 9th of April, several non-governmental human rights organizations sued four multinational clothing giants in Paris. These companies include the Spanish Inditex, Japanese clothing brand Uniqlo, American sports shoe brand Skechers as well as Zara which is also owned by Inditex. Another targeted company would be the French fashion group SMCP, which is the parent company of brands such as Sandro and Maje, and have been acquired by China's Shandong Ruyi Group.

The crimes charged by these human rights organizations include the so-called "forced labor and crimes against humanity". William Bourdon, the representative lawyer of these human rights organizations pointed out that this is merely the beginning of what will be a series of complaints by other European countries in the coming months. Human rights organizations believe that these accused companies are complicit as their upstream and downstream supply chain companies are unable to guarantee not being involved in the forced labors. This lawsuit was the first large-scale judicial prosecution in France and how these companies responded has been the focus of the market.

The prosecution of these multinational apparel giants in France is part of the second wave of the "Xinjiang cotton" incident worldwide, following the first round of the incident which erupted in March this year. As foreign brands such as H&M, Uniqlo, Adidas, Converse, Nike, CK, Burberry, PUMA, New Balance and others have boycotted Xinjiang cotton, this has stimulated reactions of public opinion in the Chinese market. There have been a lot of disagreements regarding the above-mentioned brands in China and most of the boycotting action is reflected online. Consequently, many Chinese celebrities who happen to be spokespersons of the above mentioned brands have also suffered. One after another, they terminated their contracts with these brands, while some of them were forced to pay extremely costly compensations for doing so.

Historically, human rights and values cannot be seen as completely irrelevant to businesses. In human society, businesses will more or less share the values of a particular era. However, even after the 21st century has entered its second decade, human rights and values are still very strongly involved in businesses and the financial market, which is a rare occurrence throughout history. In all fairness, the reason why many multinational companies boycotted "Xinjiang cotton" is purely based on Western preconceptions and perspectives. The emergence of this situation is directly related to the deterioration of the geopolitical environment in recent years. This is especially true in the Trump era, where the U.S. government took the initiative in the complete decoupling of China from the United States, pushing U.S.-China. relations to the lowest recorded point in more than 40 years.

The underlying reason behind this move by the United States stems from a fundamental change in the United States' strategy toward China. The socialist China, which has gradually increased its comprehensive strength, has been "upgraded" into a long-term strategic competitor of the United States and has become the "biggest threat" that the United States faces. This strategic adjustment made by the United States has little to do with its domestic political differences. The deteriorated U.S.-China relationship which began during the Trump administration has now become a political legacy that the Biden administration is willing to inherit and acts as a bargaining chip that can be used in its relations with China.

It is therefore not surprising that the deterioration of the geopolitical environment has penetrated into businesses and financial markets. It can even manifest itself as hard measures as seen by the U.S. expelling Huawei on grounds of national security as well as through imposing technical blockades and chip embargoes. Businesses that promote such value can also be conducted through foundations and industry associations, such as the "Xinjiang cotton" incident by Swiss Better Cotton Initiative (BCI).

Generally speaking, companies pursuing business interests are more efficient organizations and they have never been active participants in these values. Yet, when the political environment of a society takes a turn towards the extreme or becomes harsh, companies have to adapt to the new business environment caused by political interference. Taking the aforementioned multinational apparel companies as an example, it is impossible for them to be unaware of the consequences of taking a stand in the "Xinjiang cotton" incident, but local political factors have begun to strongly interfere with the market environment and companies have to accept the fact that they are being trapped in such circumstances. The wave of business values in the international community, coupled with the emergence of nationalist sentiments in China has resulted in the creation of "value businesses" in the Chinese market that are aimed towards a different direction as well.

The truth is that, companies pursuing commercial interests have always been targets in political turmoil. They will temporarily compromise due to commercial interests or engage in political acts on less serious issues. However, if too many political factors start affecting the business, the state and political institutions will arbitrarily target such enterprises. This is similar to an act of McCarthyism aimed at the corporate world which proved to be destructive to both market environments and businesses.

The cases against the multinational clothing companies in Europe show that some organizations and institutions are still refusing to give up on the "Xinjiang cotton" issue, reflecting that even if we are in a modern world with advanced technology, preconceptions and shortsightedness still remains unavoidable and prevalent. From a pessimistic point of view, the world may still face a kind of "McCarthyism" in the future of the commercial field; yet looking at it optimistically, the world cannot deviate from the track of globalization forever, and it may yet return to its normal track.

Final analysis conclusion:

Severe geopolitical frictions are creating acts of "McCarthyism" in the commercial field. As for China, it needs to firmly believe in the concept of globalization and wait for a sense of rationality to return.

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