Analysis

China is using its global platform to champion its leadership on the world stage ahead of a second Trump administration. Much like under the first Trump administration, Xi Jinping is attempting to draw contrasts–despite contradictory evidence–between an isolationist US and a globally engaged China. Trump’s pledge for increased tariffs and a renewal of his “America First” doctrine has shaken markets and foreign governments alike, with many turning to China for guarantees of “stability” amid growing economic and political uncertainty. 

At the G20 summit in Brazil, Xi met with President Biden for a final time and touted China’s close ties to Latin America as a signal that China would remain committed to engaging (on China’s terms, of course) with the Global South. Emphasizing China’s push for peace, low tariffs, climate leadership, and greater free trade–while conveniently sidelining Beijing’s support for Russia, high protectionism, heavy intervention in its own economy, and mantle as the world’s largest greenhouse gas emitter–found receptive audiences at the summit. Maintaining the US-China rivalry is similarly popular at home for Xi as it emphasizes China’s capacity to outcompete the US as an emerging superpower. 

Xi’s calls for other nations to not follow Trump’s example by erecting their own trade barriers is particularly telling of how China now sees globalization as not only positive for the Chinese economy, but as essential for handling overcapacity, reduced consumer demand, and slowing growth that have plagued China’s post-pandemic recovery. Key to the CCP’s response to Trump’s tariffs and other trade barriers will therefore likely be a more active pursuit of alternative markets that can dilute the US’s effectiveness in constraining China economically. 

China’s support for open trade and international stability, however, should not be seen as a change in policy from Beijing. Rather, Trump’s rhetoric allows Xi to position himself as a champion of these ideals, all while maintaining China’s tight control over its own economy and expansive influence of the CCP in engagements between Chinese and foreign corporations. Businesses should therefore treat Xi’s words skeptically; if China really were a supporter of open trade and international stability, then why does it continue to restrict foreign access to the Chinese economy and support Russia’s invasion of Ukraine? China’s actions therefore stand at odds with Xi’s renewed rhetoric, despite some seeing what they want in China’s offers of investment, trade, and an alternative to Trump.

Analysis

Both China and the incoming Trump Administration are preparing for the future of US-China relations after January’s inauguration. Based on Trump’s national security picks, like Marco Rubio as Secretary of State and Alex Wong as Principal Deputy National Security Advisor, hawkishness on China and a focus on the Indo-Pacific will likely dominate the incoming administration’s foreign policy agenda. Rubio’s consistent approach to supply chain security, China’s overcapacity, and a prioritization of human rights discourse will all likely continue to dominate engagement with China in the coming years. 

Actions by Congress’s US-China Economic and Security Review Commission and the Committee on the CCP will also likely continue to disincentivize corporate cooperation with China, highlighted by the Committee’s recent naming-and-shaming of venture capital firms with ties to China and banning of imports tied to Uyghur forced labor. At the same time, Beijing may threaten US companies in retaliation for Trump’s anti-China tactics, with tightening regulations, laws, and detention of employees for US companies operating in China all potential options. US businesses with engagements in China should therefore prepare for the eventuality that these engagements may end up being weaponized against them as they end up in the crosshairs of US-China tensions, with potentially dramatic consequences for reputational damage, market share, and stock value. 

One way that Trump will likely try to demonstrate his tough-on-China approach early on will be through the introduction of tariffs on Chinese imports. The pick for Secretary of Commerce, Howard Lutnick, strongly supports high tariffs on imports and relocating manufacturing jobs back in the US. China’s trade status with the US also looks likely to change. The new administration should tread cautiously, however, insofar as increased tariffs and economic competition with China will likely lead to higher prices and inflationary pressures at home that Trump campaigned against.

These pressures, combined with pro-China voices (most notably Elon Musk) in Trump’s inner circle mean that the new administration’s China policy will face an increasingly complex global environment, tough battles between government agencies (and individuals) with competing agendas, and the wildcard of Trump’s capacity to be flattered by strongman leaders like Xi Jinping. Businesses, regardless of whether they have direct connections to China, should therefore play close attention to the key players that will formulate Trump’s China policy as harbingers of how the new administration will determine corporate decision making for the coming years.

Analysis

Chinese exports continue to dominate conversations about global trade. Trump’s promise of increased tariffs incentivizing Chinese state-owned and private companies to brace for trade disruptions and to prioritize markets outside the US. Chinese producers of semiconductors and other tech products, for example, are reportedly accelerating production that relies on US technology ahead of anticipated export restrictions by the new Trump administration. Others in China are pivoting production entirely. An iPhone factory in Guangdong Province, for instance, recently converted to an EV production facility in response to the domestic need to export more Chinese EVs and Apple’s shifting of some production to India. 

In response to China’s unfair export practices and attempts to restrict Chinese EVs from flooding the market, the EU looks set to introduce new trade policies that will demand Chinese tech IP in return for EU subsidies. In an ironic reversal of China’s own protectionist policies, which include demands for foreign companies to share IP by entering joint ventures with local Chinese partners, the EU proposal responds to concerns among some member states that China’s shifting of EV production to be within the EU was enabling them to illicitly receive subsidies and circumvent import restrictions. 

While kinks are still being worked out in Brussels, this demonstrates how trade blocs are beginning to employ similar techniques against each other. China, shockingly, appears not to like the taste of its own medicine. This move by the EU suggests that the current era of global free trade–to characterize the post-Cold War era in simplistic terms–may be coming to an end, and that protectionism may well be the dominant trend in the coming years. Businesses should plan accordingly and ensure that supply chains and tech reliance (as we detail below) are ensured from possible disruptions as a result of barriers between trade blocs.

Analysis

AI and tech will be increasingly central to US-China competition under a new Trump administration. For China, AI is a golden bullet that CCP leaders hope will solve a number of economic and social problems, and position China as the global leader in new technologies that exceed their American counterparts. In response, geopolitical discussions around tech are trending towards “AI sovereignty,” with Taiwan announcing a $3 billion fund to support domestic development of AI industries and data centers that do not rely on Chinese technology. This is supported by companies like TSMC, which are becoming increasingly intertwined with US funding and supply chains. Collectively, the shifting tectonics of the global tech sector mean that geopolitics will continue to dominate the industry.

The demarcation of AI as a function of national security will also likely color the tech industry’s capacity to engage with foreign partners, particularly with partners from geopolitical rivals. Recent revelations, for example, that Microsoft and Google engaged Chinese tech startups with ties to the CCP and China’s security forces will likely undermine these companies’ attempt to get on the good side of the incoming Trump administration. In one example, Google accepted a Chinese startup into its incubator program despite evidence that the startup supplied smart glasses to Chinese police. Companies engaged with Chinese tech entities, including through funding and incubators, will therefore likely have a challenging time as US media and lawmakers continue to demonstrate how the CCP intervenes and co-opts its tech sector to serve its own goals. 

In response, the new administration appears set to both expand export controls started under Biden to new technologies, and continue to clampdown on the presence of China’s tech sector in the US. One issue will be that as platforms reach a scaling law limit–that is, where additional improvements to models have diminishing returns over time–US restrictions may have decreasing power over Chinese models. In other words, US attempts to restrict China’s AI growth may be less effective over time. This means that export restrictions will likely, at some point, be supplemented by outright bans on Chinese technology and a push towards “clean networks” that segregate US and Chinese supply chains, development, and tech products. 

Companies therefore need to be proactive about their supply chains, tech reliance, and global engagements to ensure that they are confident about the origins of their tech products. Failure to do so may lead to losing access to those products as supply chains are severed, or result in legal or reputational challenges as both Beijing and Washington enforce zero-sum thinking about their own tech sovereignties.

Analysis

Details continue to emerge about how a telecommunications hack linked to China’s Ministry of State Security, nicknamed “Salt Typhoon,” managed a sweeping infiltration of US telecommunications companies, email service providers, and US data networks. The hack, which targeted companies including T-Mobile and AT&T, invaded networks and stole customer call records data and other sensitive cellular data information. The exact extent of the attack is unclear because victimized companies were slow to detect and report the issues, a facet that inadvertently abets the hackers’ tactics. The NSA Director has called for those targeted to disclose details of the extent of the damage so that companies and governments can adequately respond. The White House, for example, learned from industry leaders that the hack exposed complete lists of phone numbers that the Department of Justice monitors for “lawful intercept” wiretapping, which, among other conclusions, suggests that China is now aware of which of its spies in the US have been identified and are being monitored by law enforcement.

Chinese hacking is not new. The scale of the Salt Typhoon breach, however, is staggering. The extent of the hack will certainly bring increased pressure on tech companies to ensure security in their systems and improve their detection and reporting.

While this story is simmering at present, it will likely become bigger news in the coming weeks as the incoming administration seeks to flex its anti-China muscles. Moreover, the Trump administration will be inclined to go after tech giants like Microsoft, which face ongoing battles with Elon Musk and whose leadership did not support Trump’s reelection. Businesses will therefore need to assure their customers that their data is secure. As with other breaches, Salt Typhoon highlights the need for tight cybersecurity and adequate communications strategies to mitigate potential fall-out from a drop in consumer confidence if a breach is seen to be poorly managed.

Analysis

Critical subsea infrastructure is increasingly important to China’s waging of hybrid warfare against NATO and its partners. The severing of an undersea cable in the Baltic Sea–the second case in the last year–highlights the vulnerability of this infrastructure to malicious actors. German defense officials pointed to the incident as a likely act of sabotage, while Danish naval vessels tracked and pursued a Chinese vessel captained by a Russian national. This vessel was present at the site and time of the cable’s severing. On visiting the physical locations of Ningbo Yipeng Shipping Co., the company that owns the vessel in question, investigators discovered that address was empty, instead marked as a “Military Management Zone.” 

This event is part of a series of similar acts committed by Russia and China in the past few years: from a Chinese vessel severing a Finland-Estonia cable last year, to China’s cutting of cables that connected Taiwanese islands near the Chinese coast. In each case, a lack of response from targeted countries against China, and China’s unwillingness to admit its nefarious actions, mean that sabotages will likely continue without significant repercussions for Beijing. 

This tactic is part of a larger PRC strategy of incrementalism–Beijing attacks the West at levels short of provoking responses that Beijing cannot tolerate. The more muted the international responses, the more the PRC ratchets up the level of damage it inflicts on foreign targets. The PRC has pursued this strategy across a number of different realms, including intellectual property theft, hacking, island building in the South China Sea, and territorial grabs along its land borders. This element of China’s hybrid war strategy persists because it is effective in achieving incremental achievements central to Beijing’s strategic goals. 

This is a tricky externality for businesses to navigate. While governments increasingly realize that undersea infrastructure is critical to national security, and should be protected as such, businesses often rely on these cables without realizing how essential they are to information and communications. This is particularly the case for companies with investments in island nations–including Taiwan–that will suffer the most from severed cables. Businesses should therefore increasingly aim for contingencies that include updated current service level agreements with telecommunications providers, additional insurance for loss or reduction of service, and mitigation plans for financial risk that include cable disruptions.