Analysis

CCP General Secretary Xi Jinping is seizing on global displeasure with the US government over tariffs and other bilateral disagreements to position China as the leader the world needs. Describing China as “a beacon of light in the fog” (雾霭中的明灯), the CCP mouthpiece People’s Daily underscored Xi’s and other senior CCP officials’ numerous meetings with foreign dignitaries over the past few weeks. Xi has indeed been busy: in the first week of August alone Xi held 32 bilateral or trilateral meetings; met with 61 foreign representatives during China’s September military parade; and hosted the 26 member states and partners of the Shanghai Cooperation Organization. Much like the military parade’s celebration of China’s joint “victory” with Russia over Japan in World War Two (China and Russia hardly fought Japan at all during the war; Russia came in at the very end, and the CCP and Nationalists spent more effort fighting each other than Japan), these meetings projected a jubilant tone of China realizing its “inevitable” rise as the undisputed superpower at the US’s expense. 

Regardless of whether the US government thinks it is pursuing isolationism, China is acting as if the US is surrendering its global leadership. The US government’s introduction of tariffs and other measures against US partners is helping China make this argument, and is reshaping how countries view their relations with both the US and China. As we wrote previously in the case of US-India relations, bilateral tensions create a window for Beijing to overcome previous animosities with New Delhi, a feat that would have surprised many just a few months ago. In particular, it gives scope for China to claim to represent the Global South as a collective that explicitly opposes the West and sees the West’s decline as inevitable. If these countries decide that China is offering stability in the face of US volatility and capriciousness, then that undermines the US government’s power to strike favorable trade deals or win friends against China’s diplomatic onslaught.

While Xi’s meetings with foreign dignitaries therefore seems like diplomacy as usual, it points to a more concerted effort to frame China as the center of a new geopolitical reality in which Chinese–not US–companies and interests dominate. The military parade attendees, for example, visualized who China views as its “friends”–predominantly in Africa, Southeast Asia, and Central Asia–and therefore which countries will likely come under increasing pressure to exclude US businesses. This makes for an increasingly complex and difficult global landscape for US businesses to navigate. While the risks of maintaining production, physical offices, or supply chains in China are well documented, it is less clear what these risks look like in countries previously deemed as less risky alternatives, like India or in Southeast Asia. If these countries are moving increasingly towards China, what happens to US business interests there and how do companies mitigate associated and potentially increased risks? In particular, if US government demands for companies to divest and decouple from China expand to include Chinese partners in third countries, then how do companies mitigate potential regulatory or reputational risks?

While there are no easy answers, US businesses will increasingly need to dynamically respond to shifting geopolitical changes, likely to a greater extent than many company executives currently realize. As we note in “Business Matters” below, regulatory and reputational risk are likely to be increasingly intertwined and demand tighter diligence over US business dealings not only in China, but also in other countries where China has business interests. If the US and China can exclude each others’ companies from within their own borders, it is only a matter of time before they assert similar demands from partner countries to partner exclusively with US- or China-based corporations. The most pressing challenge for the US, and by extension US-based companies, is that, on this metric, China appears to be winning.

Analysis

The US-China trade war is one thing the Chinese economy really doesn’t need right now. Reports that China’s central bank is introducing market cooling mechanisms and looking to boost the flailing property sector appear to have sent a few jitters through global markets. Yet despite these quibbles, one potentially major disruption, namely US tariffs on Chinese exports, appears to have made only a mild impact on China’s economy, particularly when compared to what US policymakers likely hoped for. How can China have both a fragile economy and be relatively insulated from a major external shock like US tariffs? 

China is weathering the tariff storm for two main reasons. First, China has developed an indigenous supply chain that, while not fully domestic, protects the Chinese economy from US shocks. Second, the Chinese political system is designed to react less to short-term market and political demands than as occurs in democracies. The freedom to ignore (to a degree) clamoring from below allows for a far greater degree of government steering of the economy than in other countries. This means that senior CCP officials are both able to direct the economy–albeit not always perfectly–in a way that follows their own political priorities, rather than according to market forces, including who Chinese corporations trade with, at what prices, and at what quantity. China’s overall exports, for example, have not significantly declined, despite the US becoming a much more challenging export destination. Rather, exports have either increased in volume to make up for reduced prices, or shifted towards other countries, including in the Global South, to compensate. Indeed, there are signs that the US may, somewhat ironically, be helping China achieve its long-term economic goals. While there is short-term pain from reallocating trade, the US trade war, as we have previously argued, gives political cover in the shape of standing up to the US for catalyzing the Chinese economy away from relying on US buyers in a manner that domestic consumers are more likely to swallow.

There are some signs that US-China relations are improving; a bipartisan Congressional delegation will visit China for the first time in six years. But the reality is that China is unlikely to negotiate on tariffs or trade while, on the one hand, the US has little to offer beyond removing trade barriers, and, on the other, China thinks it is in a much stronger position to dictate terms of engagement. This is particularly the case with China’s stranglehold on rare earth metal processing, over which it maintains a vicegrip on global supply. 

The current trade war will therefore continue because neither side has much political incentive to negotiate. US businesses therefore need to plan for what a business and supply chain looks like either with the additional costs of tariffs baked in, or with the (far more challenging) use of alternative suppliers that do not rely on Chinese components or suppliers. The real question is which side will blink first.

Analysis

The US government’s unprecedented demands for “golden shares” and percentages of profits have caused executives across the country to rethink their business practices so as to avoid being targeted. Options for escaping the long arm of the US government are limited, however, and opaque understanding of product end-users raises reputational risk and increases the chance of government intervention.

AI company and maker of Claude AI, Anthropic, is the most recent example of US executives adopting proactive measures to stay ahead of potential and unwanted US government attention. In the wake of Nvidia’s recent headaches caused by the US government’s interventions into the company’s dealings in China, Anthropic announced it would voluntarily stop sales of its products to Chinese-owned companies and groups, along with other US adversaries, including Russia, Iran and North Korea. The company cited potential military and intelligence risks of continuing sales to China, and estimated that their financial losses would be in the “low hundreds of millions of dollars.” While the US government has made it clear that they want to prevent China from accessing advanced AI technology, and Anthropic’s decision highlights its desire to be seen as supporting those goals, only time will tell whether or not Anthropic’s self-inflicted wound will suffice as an offering.

While Anthropic has decided to cut its losses early with this announcement, it is perhaps saving itself from a different problem: the reputational risk of products ending up where they should not be. Recently revealed classified documents from China have connected IBM to China’s repressive “Golden Dome” project, better known as the Great Chinese Firewall; Dell has been connected to racial profiling technologies in China; and, long before the company’s current troubles with the US government, Nvidia’s H20 chips were previously identified by Congress as running China’s surveillance technology used against its Uyghur population in Xinjiang province. All three companies have officially denied knowledge of their products being used to enable repressive Chinese programs.

Denial about who one’s end-user is, however, will no longer be sufficient in the current political environment. Companies must pay attention to who will be their product’s end-user and what purposes their products will serve. Nvidia’s denial, for instance, did nothing to deter the US government from imposing export controls and demanding shares of its profits. The discovery of TSMC chips in Chinese products last year despite US export controls, too, was a large contributing factor to its later decision to invest in the US, as it needed to affirm its reputation as a firmly committed American ally. They are still playing catch-up from this faux pas, too, and recently announced that they would end their use of all Chinese chipmaking equipment in its factories. It is perhaps no wonder, then, that US companies’ are increasingly pessimistic about the possibility of continuing to do business in and with China.

Determining one’s end-user in the Chinese context is no simple task, though, as military-civil fusion (MCF) continues to blur the lines between the two domains. Private companies and university labs are increasingly collaborating with state-owned enterprises on what are ultimately military contracts, although that final detail is often conveniently lost in the procurement chain. This does not mean that one must eschew doing business with China altogether (despite Anthropic’s decision), but it does mean that it is vital to demand transparency from partners about their vendors and financing or else risk dangerous revelations down the line.

Analysis

For the US tech sector, the risks of continued engagement with China are compounding. While regulatory issues dominate key concerns for the tech sector, including export controls, a recent spate of negative attention towards US companies’ alleged abetting of China’s tech advances underscores how reputation issues are likely to escalate. Moreover, reputational risk is likely to bleed into regulatory risk as the US government moves to increasingly restrict the scope for engagement between the US and China’s tech industries. 

As just one example, the US government’s revocation of "validated end user" (VEU) status for TSMC, Samsung, and SK Hynix eliminates Biden-era waivers that allowed these firms to send US chipmaking equipment to Chinese facilities without individual licenses. VEU status essentially provides pre-approved companies a "fast pass" to bypass normal export licensing requirements for each shipment. Effective December 31 for TSMC, the restrictions freeze expansion while permitting existing operations.

The US Commerce Department will license current operations but not capacity expansion or technology upgrades at Chinese facilities. This caps semiconductor capacity at present levels while avoiding supply disruption—Samsung's Xi'an plant produces 30% of its NAND flash memory, while SK Hynix's Wuxi facility handles 35% of its DRAM output.

These semiconductor restrictions reveal a broader containment strategy. The US government blacklisted 27 Chinese firms tied to supplying the PLA with advanced technology and seven more developing quantum computing tools that could break encryption, signaling that chips are a test case for export controls across emerging tech domains. 

Beijing responded by directing ByteDance, Alibaba and Tencent to halt Nvidia H20 chip orders pending security review, showing that Beijing can impose costs on the United States for the latter’s export control decisions. The revocation of long-standing waivers suggests sectors beyond semiconductors—cloud computing, AI software, advanced manufacturing—may face similar restrictions.

The bigger story is that this debate is no longer just about semiconductors, but about U.S. and European technologies enabling Chinese firms that export repression abroad. A leak of more than 100,000 internal documents shows Geedge Networks (积至), co-founded by Fang Binxing, the “Father of China’s Great Firewall”, exported censorship systems to Myanmar, Pakistan, Kazakhstan, and Ethiopia. Strikingly, Geedge relied in part on Western and European components, underscoring that while Washington clamps down on chips, Chinese firms continue to rely on global supply chains in adjacent sectors like networking and surveillance.

For multinational technology companies, chip controls signal that preferential access is temporary. Companies face growing pressure to choose between US technology access and Chinese market participation, accelerating technology's march toward parallel systems serving separate geopolitical blocs. The semiconductor playbook—freeze capabilities while maintaining current operations—offers a template for managing technological decoupling across industries without triggering immediate supply chain collapse.

Analysis

China’s offensive cyberespionage is some of the most sophisticated in the world, but that doesn’t mean that Chinese cyberattackers aren’t above using simple techniques to extract sensitive information. As the recent case of Chinese cybercriminals using fake emails posing as 

China committee chair Rep. John Moolenaar (R-MI) demonstrate, phishing emails can be just as effective as more complex operations for infiltrating an organization. For Chinese cybercriminals, their key question will be why build an expensive and complicated attack mechanism when individuals might be willing to give you the same information for far less effort?

This is not to say that Chinese cyberattackers have abandoned building sophisticated techniques. The Chinese state-backed group Salt Typhoon, for example, was recently discovered to be active in over 80 countries and will likely prove impossible to expunge from many telecommunications networks. Among these highly developed attacks, however, Chinese espionage still exploits the weakest point in most companies' infrastructure: its employees. In the case of fake emails from Rep. Moolenaar’s office, for example, analysts traced emails to trade groups, law firms, and government agencies to the APT41 cybercriminal organization, an offshoot of Chinese intelligence that is more commonly associated with large-scale vulnerability exploitations.

This multi-pronged approach highlights a key feature of Chinese espionage efforts as simultaneously attacking multiple weaknesses in US companies. Companies need to increasingly protect against both “trawler net”–where Chinese intelligence operatives try to scrape large amounts of data on a broad range of topics–with “line-caught” espionage, which involves more targeted attacks against particular individuals, as demonstrated by these phishing attacks. This means that employing a singular approach to combating corporate cyber espionage will fail. Companies need to understand that individual employees are just as likely to accidentally leak sensitive information through lax personal security as through a sweeping cyberattack. 

Protecting against insider threats is therefore not a hypothetical, nor is it unnecessary even if everyone in an organization is known and trusted. Rather, as these phishing efforts demonstrate, employees need to be trained and empowered to protect themselves by spotting targeted attacks. Failure to do so could be catastrophic for US companies.