Analysis

The US election met with a combination of support, surprise, and concern in China. Some scholars noted that Trump was the devil we know for China, while others argued that Trump could be better for China as his transactional approach to politics presents a wider window for cooperation than a Harris Administration’s consistent tough-on-China proposals.Chinese state media were quick to stress the importance of cooperation over conflict in US-China relations, underscoring that when both countries work together “we both win” (never mind that China’s leaders view the relationship as zero sum). 

Chinese netizens had similarly mixed reactions to Trump’s electoral victory. Chinese ultranationalists were generally excited. They see Trump as their best hope for a chaotic US domestic environment that undermines Washington’s ability to concentrate on countering China. Some pundits expressed optimism about the future of US-China relations, which they see as likely more productive under Trump compared to Biden’s (or Harris’s) consistently tough stance. Others online expressed nervousness. They consider Trump more likely to be tough on China and unpredictable in how he seeks cooperation or conflict with Beijing. 

Trump’s election comes at a time when China’s struggling economy continues to underperform amid deflation, with stocks in Hong Kong dropping in response to disappointment in China’s announced stimulus. The CCP will likely increase stimuli next year in response to Trump’s proposed tariffs on Chinese exports. In response to the election, one China-based hedge fund advised clients to pull out cash and pocket gains as uncertainty about tariffs clouds China’s market. For US investors, the combination of the challenging economic environment in China and uncertainty about Trump’s approach to Beijing means that the financial, regulatory, and reputational risks of continued engagement in China will continue to increase. 

 China’s economic woes and Trump’s tariffs will likely hinder China’s manufacturing performance in the short run, while incentivizing China’s engagement with alternative markets. One way that China will likely respond will be by focusing its attention on the Global South. As US businesses attempt to navigate increasing geopolitical tensions, they should therefore look to China’s economic reports, US policy changes, and how China is engaging with other countries to incentivize and encourage them to side with China over the US. This means that attempts to relocate business operations outside of China in places like India or Southeast Asia will therefore need to pay close attention to how these states align with either China or the US. Third countries’ ability to please both China and the US will shrink amid growing pressure from Beijing and Washington.

Analysis

The Hill is notably hawkish on China, but those who have Trump’s ear are divided. What will be key in the coming weeks is who takes key Administration jobs that touch on China, namely State, Treasury, Defense, Commerce, Trade, National Security Council staff, and Indo-Pacific advisors. Rumors that Marco Rubio will be named Secretary of State and Mike Waltz as National Security Advisor assured some that the new administration would maintain a strong pro-Taiwan stance. The short lists for other positions will likely involve China hawks, either because they support specific anti-China economic policies, like protectionism, or because they vocally argue that China is a fundamental threat to the US. Moreover, top officials in the next administration are broadly incentivized to continue trends towards hawkishness against China, a trend that would likely have applied just as equally to a Harris Administration as it does Trump.

Yet, it would be a mistake to think that hawkishness will definitely win the day. Trump famously disregards formal process and advice and often relies on informal advisors to make decisions. These include donors like Elon Musk and Jeff Yass, whose business interests make them significantly less hostile to China than either Hill Republicans or Trump’s likely appointees in national security and trade. A key example of this is Trump’s position on Bytedance and TikTok. Trump initially favored banning the popular app in the US, but changed his views after Yass, a heavy investor in ByteDance, threw his support to Trump. Similarly, Musk’s fervent support for Trump’s election led to changed positions on electric vehicles.

The new administration will find a bumpy road in dealing with China and an increasingly challenging global environment for furthering US interests. The US faces a two-pronged issue of growing Chinese international engagements, particularly in the Global South, and increasing nervousness among US allies, which may face domestic backlash for aligning too closely with the new administration. This is a view that appears to be shared by Vladimir Putin, who spoke at length about the forming of a “new world order” with China and Russia at the center. This point was reinforced by Russian Foreign Minister Sergei Lavrov, who noted that Trump was much less “anti-China” than Biden, and that Russia was therefore optimistic about the saliency of a China-Russia axis in the next four years. These global realities will therefore fundamentally shape how the new administration approaches China.

Analysis

Trump has proposed new 10-20% tariffs on all imported goods and up to 60% tariffs on Chinese goods. From the Chinese perspective, this has the potential to severely impede China’s economic recovery – which, we will remind readers again, is not in the United States’ economic best interests. During Trump’s previous presidency (2016-2020), China’s property market had yet to collapse and the COVID-19 pandemic had yet to cripple the Chinese economy’s growth trajectory. Now, the Chinese economy is in a shambles; economists predict China will miss its growth targets for this year (and will continue to do so in years to come); the property market, although stabilizing, is expected to remain down for years; and all this was predicted before Trump’s re-election. Throwing a 60% tariff on all Chinese goods entering the US will likely exacerbate the extreme deflationary pressures already facing Chinese manufacturers, which will find themselves even more unable to offload their goods, and then in turn will accelerate the country’s economic downward spiral. What’s more, the reduction of cheap Chinese goods in the US market will drive up domestic demand on limited supplies, raising the price of consumer goods at home and contributing to overall U.S. inflation.

Separate from what they might mean for the Chinese economy, tariffs and related restrictions on Chinese products will harm some US businesses. Trump previously promised to ban the purchase of “any vital infrastructures” from Chinese sources but did not elaborate on the scope of this category. While this is not entirely different from national security policies pursued during the Biden administration, it would significantly increase the risk of doing business with China. Whereas companies now might be ineligible for CHIPS Act tax breaks if Chinese labor or banned companies were found in their supply chains, those products may become at risk of being fully banned. Things like EV batteries and semiconductors that rely on rare earths sourced from a Chinese-dominated market may also be on the chopping block, and this includes Taiwan’s TSMC, a critical US supplier of semiconductors. In short, our earlier exhortations to start decoupling and insulating your supply chains from China are all the more pertinent, since these changes could happen at any moment once Trump takes office.

Analysis

Tech is increasingly at the center of geopolitics. Elon Musk’s proximity to Donald Trump during the election underscores how big tech players hope that the new administration will back their positions on a range of regulations and policies. 

One noticeable trend is that Trump’s nationalist rhetoric is shifting public opinion in China away from seeing the US as an alternative to China for school, talent, and investment. Where there are possible national security benefits from the reduced number of Chinese nationals working in sensitive or dual-purpose tech innovation in the US, it also undermines the US’s ability to attract global talent, which has long been key to US competitiveness. This balance between ensuring security for the private sector and attracting global talent–as detailed below–will likely lean one way or the other depending on who has access to Trump: tech leaders or national security policymakers. Companies that rely heavily on foreign recruitment, particularly in skilled sectors like tech, should therefore note who Trump appears to listen closest to, rather than seeing the new administration as uniformly “anti-immigration,” with tech giants incentivized to keep H1B, H1B1 and other visa classes open. 

One other function of Trump’s campaign rhetoric is that several US partners are already changing policies to exclude Chinese involvement and prioritize secure supply chains or “clean” networks with the US. South Korea, for example, is taking the initiative to boost semiconductor manufacturing in response to Trump’s electoral victory, and will likely come under increasing pressure from the new administration to halt tech exports to China. Combined with the Biden Administration's rush to finalize subsidies for key sectors before January, the tech sector will therefore need to respond quickly and flexibly to geopolitics in the coming months. Collectively, shifting regulations on employment and supply chains will therefore likely dominate conversations in the tech industry in the coming months. Companies in this space should look to plan for a possible tightening of regulations in both areas.

Analysis

According to recent press reports, Huawei is offering select employees from TSMC salaries up to three times the industry market rate to relocate to work for Huawei. Huawei is not unique in this regard. This “brain drain” tactic is a variation on China’s Talent programs in which PRC programs like “100 Talents” or “1000 Talents” pay individuals to work at foreign companies and bring back knowledge, including trade secrets. This is blatant commercial espionage. (It is important to note that not all participants in Talent programs are committing espionage, but a significant number, perhaps even a majority do.)

What to do? Just as American companies should make it their business to know who in their companies is either a member of a talent program, or who has applied to such programs, these firms should be aware of any increase in recruiting efforts directed at their employees, especially those with knowledge and skills in high demands in China, e.g., machine tools and robotics, new materials, aerospace, chip manufacturing, AI, new energy technology; and biotech.

Two additional points merit consideration. First, US and other employers from advanced economies should be aware that PRC based companies do not always make clear their ties to the PRC. For example, they sometimes rely on foreign subsidiaries for these purposes. Companies consequently need to look at all recruiting efforts, and not just those from obvious PRC-based firms. Second, depending on Huawei’s and other PRC firms’ successes in acquiring foreign intellectual property and the extent of the effort, this new PRC tactic could reset salaries across certain job categories and industries.

This new brain drain therefore can increase the costs of business in advanced economies in two ways: forcing firms to spend more on additional R&D to compensate for lost intellectual property-based revenue; and raising salaries to keep necessary talent.

Analysis

Much as uncertainty colors the future of US-China relations, so too does a new Trump Administration's policy towards Taiwan raise questions about the island’s future. On the campaign, Trump’s remarks that Taiwan is responsible for “stealing tech jobs,” could be “discarded,” and a malaise towards Taipei among some Republicans, adds uncertainty to US promises to protect Taiwan. Compared to 2016, when President Tsai Ing-wen was one of the first foreign leaders to speak with then-President-elect Trump on the phone, Taiwan’s current leadership is palpably nervous about what direction the new Trump Administration might decide on regarding the Taiwan Strait. 

Others in Taiwan, however, are more optimistic about the administration’s ongoing support, pointing to persistent pro-Taiwan (and anti-China) voices within the Republican Party. Regardless, Taiwan will likely boost defense spending to hedge against a US government that may be less supportive of Taipei. For Taipei, buying US-made weapons, even if not strategically useful, will likely be a priority to assure alignment with Washington. Marco Rubio, a long-time vocal advocate of Taiwan, will likely help to assuage fears in Taipei that the new administration might stray from its support for Taiwan. 

Trump’s calls for Taiwan to increase payments for US defense promises, however, suggest a transactional approach to defense that will likely see the US pressure Taiwan to buy more US arms and relocate tech manufacturing to the US. Trump will likely use Taiwan as a bargaining chip against China, rather than because he values US security interests in East Asia. Republicans focused on national security will therefore need to balance with the corporate interests of Trump’s donors and close advisors, some of whom will see greater profit in allowing China to take Taiwan rather than honoring US defense agreements. 

Taiwan will also likely face growing pressure to relocate semiconductor and other chip manufacturing from Taiwan to the US in order to placate Trump’s criticisms. With TSMC shortly opening new manufacturing plants in Arizona, the company is already complying with Biden-era incentives to relocate, but Trump will likely want to see even more tech investment in the US in return for other support to Taiwan. Combined with a US that appears less interested in engaging its allies and partners around the world, Taiwan is therefore likely in for a much more transactional approach to its relations with the US in the next four years.  

As under the Biden Administration, China is unlikely to make a move against Taiwan until it is certain of victory, and can adequately mitigate the economic fallout from closing the Taiwan Straits. This, in part, means preparing the PLA, with Xi Jinping directing his military to be prepared for an invasion in the next few years, as well as lobbying for global support for China’s position on Taiwan. It also means that China is actively exploring alternative ways to take Taiwan besides risky beach landings, either through blockades or a possible negotiated handover of the island if Trump (unlikely) decides to surrender Taiwan in exchange for China’s cooperation on the economy. 

With US-China tensions likely to increase as Trump hikes tariffs on Chinese imports, Taiwan will therefore continue to play a central role in Washington and Beijing’s foreign policy maneuvering. For businesses with interests in Taiwan, this means that, while uncertainty will increase both in Taiwan and in East Asia, Republican interest in the island is unlikely to significantly decline as long as China remains the key focus for US foreign policy efforts.