Analysis

If political theater is to be believed, China’s long-belittled private sector might be making a comeback. CCP General Secretary Xi Jinping convened China’s private sector titans for the first time since 2018, in an echo to Trump’s inauguration invitation to tech leaders. This meeting signals at least a surface-level willingness for the party to allow the private sector to reemerge as industrial leaders. Combined with the CCP’s embrace of AI as a tool for growth through enhanced efficiency (not to mention military and surveillance), it would seem that the tech sector at least is earning back its privileged position as having the ear of senior party leadership.  

In comparison to the past decade, where status as a Chinese billionaire was perhaps one of the most dangerous jobs in the world, the CCP’s response to recent tech breakthroughs and the DeepSeek Effect has largely been positive towards private sector innovation. Chinese stocks notably rallied after DeepSeek’s launch of its new model in January. This rally, combined with the popularity in China of Elon Musk and his new “first bro” relationship with Trump, likely persuaded Xi that cozying up to corporate leaders might benefit his image. It is also perhaps a sign of the CCP’s nervousness about its recent economic performance that it is now easing its previous hard-line against the private sector, with the party looking to corporations to rescue China from its current economic malaise. 

While Xi’s friendlier public attitude toward the Chinese private sector is generally welcome news for China’s corporations, who have–at least for now–been granted a seat at the table again, this does not mean that Xi has changed his mind about party control over the economy. Xi’s speech to the tech leaders, for example, noted that great strides had been made by the private sector in aligning with the party’s economic goals, but also that the party’s priorities should be implemented fully and without complaint. Xi is therefore riding China’s tech wave, rather than signalling a fundamental shift in the party’s ideology or control over the economy. Moreover, with the surge in Chinese stocks slipping this week after Trump’s announced Executive Orders that tighten Biden-era export controls (see “On the Hill” below), China’s private sector is far from being out of the woods. Companies betting on rallying Chinese stocks and a potential surge in private sector demand, particularly from China’s tech industry, should therefore temper expectations.

Analysis

Beijing’s implementation of a suite of punitive measures, and Washington announced Reciprocal Trade and Tariffs, hint at a continuation, rather than departure, from both the Biden Administration and Trump’s first term. Despite this, Trump’s attitude towards China remains somewhat ambiguous. It is unclear, for example, who currently has his ear on foreign policy, with traditional Republican hawks apparently sidelined in Trump’s recent cozying up to Russia and Vladimir Putin. Whether getting chummy with Russia is a ploy to gain the upper hand in negotiations with China, or something more nefarious, is up for debate. What we do know, however, is that, at least for now, tariffs and export controls targeting China will continue to color US-China relations. 

It is unclear whether export controls actually harm China’s economy. A 20-percentage-point increase in the effective tariff rate on Chinese exports to the US will dampen China’s GDP by an estimated 0.6 percentage points in the next two years, or 2.5 percentage points if the tariff rate increases to 60%. But these estimates don’t take into account how tariffs–and particularly China’s response–look set to reshape global trade and supply chains. Businesses therefore need to be nimble in how they secure their supply chains and potentially search for alternative domestic replacements for certain imports. This makes for a complex and often messy process of sourcing and supplying, particularly for industries that rely on imports of specific products or parts. It also means that monitoring the Trump Administration's new announcements of trade barriers–including against US allies–is vital for understanding how the corporate sector will be reshaped by shifting regulations.

Analysis

As the US-China tariff battle enters a new phase, we are beginning to get a sense of how this economic tit-for-tat is transforming both business practices and political allegiances. 

In Europe, we are witnessing a begrudging but clear shift toward warming relations with China. While the return of the Trump administration and its America First policy gave Europe cause for concern, Vice President JD Vance’s recent speech in Munich–in which he openly questioned Europe’s value and chastised their policy choices–has forced Europe’s leaders to confront the quickly fracturing Transatlantic alliance. Exploiting Vance’s gaffe, China’s Foreign Minister, Wang Yi, was quick to signal China’s potential for future economic cooperation with Germany’s new ruling party, citing Chinese EV-maker BYD’s newly built European R&D Center. 

A recent study found that a growing number of Europeans are starting to view China as a “necessary partner” that requires strategic engagement. A significant portion of the European public still views China as an adversary, but this shift comes as an almost zero-sum trade-off with faith in America’s role as a European ally. The market implications of these political perceptions are already being felt: Elon Musk’s disruptive approach to conducting business has led to a 45% drop in Tesla sales in Europe in January alone, and Tesla’s market share there has nearly halved, dropping to 1%. More concerning, Tesla’s main Chinese competitor, BYD, overtook Tesla in number of newly registered vehicles for the first time. While Tesla may be among the more extreme examples due to Musk’s visibility and connection to the Trump administration, his case clearly demonstrates how shifting political messaging from Washington is influencing American companies ability to do business in Europe and European consumers’ shifting preferences.

US allies are also suffering from escalating tariffs, and the fate of the Japanese auto industry illustrates this problem. For many Japanese automobile manufacturers, such as Toyota, Honda, and Nissan, the US is their top market by sales and a significant number of their most popular vehicles are assembled in Canada or Mexico. With a proposed 25% tariff on cars imported from both of the US’s neighbors, Japanese automakers are already concerned about how to absorb these costs. This is not the end of Japanese automakers’ woes, however, as they are also suffering from Chinese export controls targeting the “3G metals” or the raw materials necessary for producing the technology used in auto manufacturing. In short, the US’s allies are becoming collateral damage in the US-China trade war, and the cost of doing business is going to go up significantly. Companies will face a choice: either absorb these additional costs, which is not a sustainable long-term solution, or pass those costs onto consumers. Either way, Americans lose.

Analysis

Semiconductors and chip manufacturing remain at the frontline of US-China tensions. New US export controls–along with other measures like pressuring ASML and Tokyo Electron from maintaining semiconductor equipment in China–take aim at China’s ability to access technologies necessary for innovation. At the same time, China is singing from the same hymnsheet by restricting exports of rare earth metals, thereby throttling other countries’ ability to produce chips (and arguably driving Trump’s negotiations with Ukraine). China’s restrictions include curtailing exports to the US, or even to companies buying on behalf of US customers. 

For the CCP, the ultimate goal of chip manufacturing and its embrace of AI goes beyond flooding global markets and having more customers than its competitors. Rather, Beijing sees AI as a “magic bullet” that will boost innovation, spur economic growth through improved efficiency, increase China’s military advantage, and permit widespread surveillance to monitor and even prevent dissent or undesired behavior. Added to this, China aims to monopolize AI industries, in part by controlling the necessary materials to manufacture chips. The CCP strives to make other countries fully dependent on Chinese AI technologies, rather than develop their own industries or use alternative products. This strategy is designed in part to discourage alignment with the US. 

China’s policies will have dramatic effects on countries like Japan, which is one of the world’s largest consumers of rare earths like gallium, germanium, and graphite for electronics and automobiles. Under new controls, Japanese companies may therefore require export licenses from China before selling products to the US, which when combined with new US tariffs may prove fatal to key supply chains in sensitive industries. This means that AI and related technologies, particularly chips and semiconductors, are not only increasingly inseparable from national security; but also that China’s control of rare earths and other necessary materials will likely be the next battleground between the US and China. Companies should therefore prepare for the eventuality that metals and other key supplies, particularly those sourced from countries like Japan, may become increasingly pricey.

Analysis

China’s extensive targeting of foreign military, government, and corporate actors across the world received a boost as the Trump Administration fired swathes of intelligence operatives as part of its calls for greater government efficiency. The CIA, for example, is conducting a formal review to assess the damage of exposed sensitive payments and an unclassified email sent to the White House that identified officers’ names and could expose undercover officers. In a push for efficiency, the new administration accidentally revealed extensive classified and sensitive information to US adversaries. 

By employing tech-sector rationale to the hiring and firing of US intelligence operatives, the Trump Administration is therefore making it more challenging to defend against espionage that will target US agencies and individuals. Corporations need to take note that while it is always prudent to assume responsibility for self-protection against IP theft and potential insider threats, the Trump Administration’s recent moves suggest that corporations will likely need to shoulder even more of the burden amid the government’s weakened counterintelligence capability.  

The US also now faces a dilemma of having a large number of security-cleared individuals with inside knowledge of US intelligence institutions looking for jobs, many of whom likely resent the decision to cut their position with little-to-no warning. Russian and Chinese intelligence operatives will pounce on this as an opportunity to recruit widely. For readers who are looking for new employment opportunities, beware cold emails or LinkedIn requests from start-ups or organizations that might be a front for Chinese or Russian operations. As corporations try to navigate the changing regulatory landscape of the federal government, beware of increased attempts by Russian and Chinese actors attempting to exploit new employees to access sensitive corporate information.