Analysis

The Trump Administration’s tariffs, tech races, and anti-dumping measures have rattled China’s leaders. In response, the CCP is accelerating plans to insulate China’s economy from future external shocks. The CCP’s economic planning will hit foreign–and particularly US–companies operating in China in three distinct, but interrelated areas.

First, China’s leaders are looking to pivot trade away from the US towards alternative markets. Making China less reliant on US trade undercuts Washington’s negotiating position and shields China from the shocks of tariffs, export restrictions, or other punitive economic measures. It also allows China to both lean into its relationships with Europe, its neighbors, and the Global South, which are becoming increasingly dependent on Chinese trade (and less reliant on the US). 

Second, tech nationalism–equating tech innovation with national security–means that as bilateral tensions escalate between Beijing and Washington, so too will pressures for companies to align corporate and national interests. This is currently most prominent in the tech industry, whereby the race to create LLMs, GenAI, and faster chips is intimately tied to national innovation and winning the race to dominate key industries. As CCP leaders outlined in the recent Politburo meeting in April, their ultimate ambition is to eradicate US tech from Chinese systems, and to create and maintain “clean networks” of suppliers and consumers that prioritize Chinese over alternative technologies.  

Third, this push for “clean networks” is increasingly creeping into other fields and economic arenas. As the CCP, aided by SOEs and China’s tech giants, helps exporters find new potential customers and markets at home, the drive from the top is to prioritize domestic manufacturers over foreign competitors. 

US companies in China therefore face a lose/lose proposition;: the USG will punish them for engaging with Chinese partners while China will choose Chinese (or at least non-US) alternatives whenever possible. While some space exists for some larger companies to ride out this two-pronged attack, the majority of US firms in China will likely find themselves forced to relocate or to think strategically about how to insulate their business operations amid a worsening geopolitical storm.

Analysis

US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greermet with Chinese Vice Premier He Lifeng in Switzerland to discuss a potential US-China trade deal that could reshape global trade. Negotiations, billed as a high-stakes meeting in which both sides aimed to deescalate bilateral tensions, are unlikely to yield long-term changes to the deteriorating US-China relationship. Instead, the meetings represent more continuity from previous discussions between Chinese negotiators and former Treasury Secretary Janet Yellen, whose persistent engagement yielded some (if limited) successes. They did, however, result in some punchy announcements in which both sides claimed victory. The Trump Administration claimed to have “opened up” China, while the CCP framed the outcome as the culmination of decades of demanding respect from the US. The actual outcome, however, is more like a return to what US-China relations looked like before January, rather than a significant change to the world trade order. It does, however, suggest that more talks are planned and that negotiations will be ongoing.  

The meeting also represents an ongoing imbalance of negotiating power between the two sides: Bessent is the most senior economic official in the United States government; He Lifeng serves on the CCP politburo but not the most senior politburo standing committee of the top eight party officials. This imbalance is important, as it means that He Lifeng is not empowered to make senior-level decisions as his superiors. It also sends a signal from Beijing of continuity from its dealings with Secretary Yellen, who similarly met with He Lifeng. China was also keen to stress that this meeting was at Washington’s–not Beijing’s–request, and that the US has not yet agreed to any tariff reductions, although President Trump floated potential tariff reductions ahead of the meeting. China has every incentive to use negotiations as an opportunity to appear as the stronger player, both for nationalist audiences at home and to position Beijing as an alternative champion of global free trade in comparison to the Trump Administration's isolationism.

Companies (and countries) should monitor these negotiations, but recognize that announcements about their outcomes from either side are unlikely to move the dial significantly for the global economy. The US will still maintain historically high tariffs, China will still continue state planning and subsidies, and the global economy will still face the same hurdles. Looking to action, rather than rhetoric, will therefore be key to determine how companies can position themselves amid an in flux global economy.

Analysis

A month into the Trump administration’s April tariff gamble, new consequences are becoming clear. The previous Red Report highlighted falling national and global GDPs as a series of broadscale indicators of the tariff’s negative effects, and now we are learning more about the mechanics behind those numbers.

Demand for shipping containers is currently lower than during the COVID-19 Pandemic, with container shippers skipping 80 planned sailings in April compared to the 51 sailings scrapped in March 2020. Weak demand following tariff uncertainty has led to three of the four major shipping lanes falling below 90% utilization, and the Shanghai Export Container Freight Index (SCFI) has dropped 47% overall since the beginning of the year. The Trump administration has further targeted Chinese shipping dominance by proposing a new fee structure for Chinese ship owners, operators of vessels constructed in China, and all foreign-built car carriers. While the new fees will not take effect for 180-days, and then only be increased incrementally, it is already causing chaos. This is in large part because Chinese-made vessels will soon represent 98% of the world’s trade ships. While this policy has the potential to cause the long-term shifting of vessel construction to the US, it is likely to lead to product shortages and empty shelves in the US in the short-term.

The automotive industry is also starting to feel the strain of April’s tariffs. US automakers, and Ford Motors specifically, have expressed concern over China’s retaliatory export controls on rare earths, as bottlenecks in supply chains have the potential to hold up whole production lines. While Ford made clear it supports the intentions behind the Trump administration’s tariffs, it also estimated that the tariffs will cost the company nearly $2.5B in earnings before interest and taxes (EBIT) this year. Toyota also announced its prediction for a 35% fall in profits for the full year (ending March 2026) as a result of the tariffs. Facing the same rare-earth issues, Germany has invested in a new energy plant that will process domestically sourced lithium, in an effort to wean Europe off its China-dominated supply chain. While the plant is set to produce only a quarter of Germany’s lithium needs by 2028, it is part of an admirable, long-term diversification strategy that all companies should be imitating. Even if the US and China resolve the current trade dispute–and talks for this purpose appear set to begin soon–it remains best practice to keep one’s supply chains robust and, therefore, better insulated from bilateral trade disputes.

Analysis

The Trump Administration announced an end to recent US controls that limited exports of artificial intelligence chips to countries like China. The rescinding of one of the Biden Administration’s final moves to restrict chip exports highlights a tension at the heart of the Trump Administration: to undo any policy that can be associated with Biden’s legacy while maintaining a tough stance on China and accepting demands from lobbying in the tech industry. In lieu of Biden-era rules, the Trump Administration announced that it would introduce a replacement regulation at an unspecified time in the future. 

Chip manufacturers, like Nvidia, will likely celebrate the end to controls that hampered its sales in China and around the world. Opponents of export controls pointed to their unenforceability, easy workarounds, and hampering of US chip manufacturers, all of which would serve the opposite goal of turning global customers to Chinese chips. While perhaps politically useful to demonstrate a “tough-on-China” stance, export controls faced criticism from Washington and industry leaders alike for abetting China’s tech rise at the US’s expense. Recent reporting, for example, indicates that export controls accelerated China’s home-grown chip industry after it became clear to Chinese tech companies that they would be unable to rely on US chips. Moreover, US restrictions on chip manufactures coincided with the CCP’s massive state-backed support to Chinese competitors to displace their US rivals in China and abroad. 

Ending and adjusting some export controls will therefore help out US tech companies and US competitiveness overseas, even if the short term ramifications appear to be a gift to China in making it easier to acquire high performance chips. It will also likely trigger a rally in US tech stocks, particularly among chip manufacturers. For the broader business community, it also highlights how the Trump Administration is susceptible to targeted industry lobbying, particularly if it coincides with a repeal of Biden-era regulations.

Analysis

Keeping nations and corporate IP safe is an increasingly challenging and dynamic game. It is made all the more difficult by users–often unknowingly–downloading unsecured apps or transferring sensitive information between personal and professional devices. One clear case of this threat to national and corporate security is DeepSeek, which burst onto the tech scene a few months ago with claims to achieve effective AI at a fraction of its competitors’ development costs. Users in the US downloading DeepSeek or using its models skyrocketed this month before fully understanding its security risks. Yet it is increasingly clear that DeepSeek, like other AI products, funnels data from the US to China, including sensitive corporate information. 

Similar trends occur across Chinese-built apps. The EU, for example, just fined TikTok for sending sensitive user data to China and infringing data protection regulations. TikTok’s embattled lobbying efforts in the EU and the US face an uphill battle as regulators wise up to the threat posed by the app’s predatory harvesting methods, but TikTok is one of a slew of Chinese apps that employ similar methods and that saturate Western app markets. In the case of Europe, recent espionage scandals further reinforce that China is not the EU’s friend. Rather, digital espionage is one weapon in an arsenal that is conducting a campaign against Western corporations and publics. 

For the CCP, app downloads and digital platforms are the gifts that keep on giving (or taking, depending on perspective). Chinese app makers–who are all answerable to the CCP–harvest, store, and exploit massive amounts of business information voluntarily but thoughtlessly uploaded by tens of millions of US users. All this information gives the CCP unprecedented access to US users and their habits. Companies need to be increasingly vigilant about how employees’ personal digital footprints potentially expose sensitive corporate information or risk loss of IP, profit, or collapse.