Analysis

The Chinese Communist Party is playing close attention to how the nascent Trump Administration is approaching world affairs. Trump’s retreat from key global arenas, like foreign aid and health, opens an opportunity for China to replace US footprints around the world. This will be particularly felt in areas that are governed by international organizations, like the WHO, where China is increasingly the primary contributor (and therefore decisionmaker) at the expense of the US. It gives China much more room to conduct “public opinion warfare” (舆论斗争) or “quasi-war” (准戰爭) tactics while expanding state-backed influence campaigns against strategic locations. It has also provided an opening for foreign governments to attack local USAID or US-funded projects as “foreign agents,” which will likely undermine other US efforts in these countries. In short, the US’s retreat from its global engagements will likely make it more challenging for Washington to achieve foreign policy goals. This dynamic will produce consequences for US companies.

In one such example, an increase in foreign aid to Pacific Island nations under the Biden Administration aimed to counter China’s attempts to influence strategic decisions like subsea cable infrastructure routes or the deployment of US military assets that could defend Taiwan against a Chinese invasion. Severing these channels of engagement grants China space to replace the US in this region, which may therefore benefit China. For US companies abroad, an increased China presence also means a more difficult business environment, both in terms of competitors and for political advantages that Chinese companies may be awarded by local governments as part of bilateral agreements that exclude US entities. 

Roles filled by US government entities are expected to shift under Trump to private companies, which will present several challenges. Companies and organizations already operating in these spaces will need to navigate amid US-government backed competitors with strong political ties to the Trump Administration. Trump’s rhetoric and policies also alienate some governments, including in the EU. These governments may pursue closer relations with China to balance Trump’s unpredictability, which all makes for an increasingly unpredictable international environment. US companies should therefore develop contingency plans for disruptions in previously stable relationships.

Analysis

Amid worsening US-China tensions, US politicians are recognizing how strongly the US private sector shapes the US-China relationship. Chinese entities exploit these relationships to influence US corporate decisions and policy outcomes. But US companies have also long taken advantage of China’s own market potential and Chinese financial stakes in the US. In response, Republican attorneys-general have accused the US investment firms BlackRock, Goldman Sachs and JPMorgan of downplaying the risks to US companies of investing in China amid the persistent (but low) threat of an invasion of Taiwan. Other companies continue to find their China engagements under fire from lawmakers of both parties, who are posing questions about supply chains or sales of sensitive technologies to China key areas of interest. 

As China steps up its own investigations of US companies in response to new tariffs (see “Business Matters” below), many companies will find themselves in the midst of a geopolitical tug-of-war. The EU, for example, echoed the US to blacklist Chinese entities that it accuses of defying sanctions against Russia and adding additional restrictions on companies like Shein and Temu. In response, some major US companies are starting to question their China footprint as they try to balance the promise of market gains by staying in China against being a high risk target for IP theft and political pressure from both the US and Chinese governments about their China-based operations. Similarly, recent reports that the Chinese spy balloon that flew over Montana was packed with US technology, for example, has landed those named companies in hot water, despite rebuttals that companies cannot control or even know the end-user for their products. This has not protected these companies from reputational–and likely political–damage of being associated with Chinese military espionage. 

As one example, TSMC is currently struggling to balance demands for its products to be labeled “made in the USA” to avoid US export controls and supply chain suspicions, while maintaining market access around the world that might reject products with this label. As TSMC and others will likely find, this balance may be challenging to maintain, with companies likely incentivized (or threatened) to lean more heavily to one side of the US-China dichotomy.

Analysis

Trump’s threatened tariffs finally arrived on Feb 1. Following a failed attempt by China to avert this outcome. The US imposed a 10% tax on all Chinese goods. The tariffs also apply to imports into the US valued under US$800, which had previously been exempt from taxation under the de minimus rule. Critics view this latter change as Trump intentionally targeting Chinese companies, such as Temu and Shein, that are known for their extremely low prices and have been accused of undercutting comparable US-made goods. 

Although China quickly initiated WTO dispute measures over the tariffs, Asian markets still took a hit on the threat of a looming trade war. China retaliated when the tariffs took effect on Feb 4, enacting a more specific suite of actions, including 15% tariffs on US coal and liquid natural gas (LNG) imports, and 10% tariffs on 72 other items, with a special focus on crude oil and high-emission vehicles. China also imposed export controls on five critical minerals globally and not just to the US; blacklisted two additional major US holding groups; and opened a vague antitrust investigation against Google (which does little business but maintains a footprint in China). 

Continuing the quid pro quo, the Trump administration levied an additional 25% tariff on steel and aluminium imports to the US on February 10; unfortunately analysts believe these will hit US allies Canada and Mexico harder than they will China.  

While this trade war continues to develop, US companies may come under unwanted scrutiny or even be subject to arbitrary targeting. For instance, China is considering opening another antitrust investigation into Apple over the fees it charges to app developers, which is, in reality, a response to long-standing conflicts and competition between Apple and Chinese tech giants Tencent and Bytedance. 

On the US side, the Trump administration is considering adding Temu and Shein to the forced labor list, which was created in 2021 to prevent the importation of goods made through forced labor in China’s Xinjiang province. Both Chinese companies have denied these allegations. The US is not just targeting Chinese companies, however, but also its allies: Trump rejected Japanese company Nippon Steel’s takeover of US Steel, reducing Nippon Steel to the role of a significant investor. In the newly returned era of US protectionism, it is not just China that must deal with rapidly changing regulations but also our allies..

How to deflect such unwanted attention and continue doing business is now the key question. One way to minimize potential attention is to continually vet supply chains for ties to China. Cutting such ties or finding new suppliers are obvious options, but are not always feasible or cost effective in the short term.  It is essential, however, that US companies understand their China exposure and risks which is not always apparent as China has gone to great efforts to conceal relevant information.

Analysis

DeepSeek’s dramatic release of its new V3 model has catalyzed markets and competitors. The “DeepSeek Effect” has spurred companies from OpenAI to CISCO to either dramatically change their business models, release new models ahead of schedule, or to accelerate AI adoption. Amid industrial disruption, DeepSeek also highlights changes in how governments–and users–think about data security and influence. In testing DeepSeek’s responses, for example, some users note the platform’s ability to weave CCP propaganda into its answers, sometimes in subtle ways. While this is a historic moment in AI development, the combination of the technology, its origins in China, and its triggering of an AI “arms race” among competitors have created a perfect storm that partially explains DeepSeek’s global ramifications. 

The DeepSeek Effect goes beyond the tech sector. DeepSeek’s market shock–wiping out $589 billion from Nvidia’s market capitalization, a 1.5% drop in the S&P 500 and a 3% drop in the Nasdaq 100–will not be the last time that a Chinese tech advancement causes corporate jitters. The big takeaway from China’s tech announcements is that Chinese competitors will continue to emerge in almost every arena from AI to satellites. This is particularly so with the US becoming more hostile to Chinese engineers, many of whom contribute to US AI development. Some of these engineers are now reconsidering whether they want to continue to live in the US or to return to China and apply their skills to competitor innovation projects. While market responses to repeated announcements of Chinese technological breakthroughs will dampen over time, they nonetheless stand to spike or crash stock prices and cause market volatility. Investing in AI, particularly in Chinese AI companies, is therefore high risk/high reward. 

Most companies now believe it is imperative that they introduce AI tools or systems into workflows and products to stay ahead of competitors. That said, AI breakthroughs will also–in some cases dramatically–affect markets and sector-wide decision making that companies need to monitor closely. Governments, particularly China and the US, will also likely play a growing role in determining which AI models or products companies can use to comply with shifting regulations. This fusing of tech and government will mean that AI will increasingly collide with national security, ranging from question of data servers to LLM model responses to sensitive political questions. In short, being smart about AI, while maintaining awareness of potential political and security pitfalls, will be essential for any successful business in the next few years.

Analysis

The Department of Justice’s new indictment of a former Google employee, Linwei “Leon” Ding, unveiled additional evidence that demonstrates Ding’s efforts to steal company IP were more extensive than previously thought. Ding’s case demonstrates key risk signals for IP theft. He was both in discussions to become the Chief Technology Officer for a PRC-based startup and founded his own company, both working in the AI and machine learning fields. 

The new indictment details how Ding tried to raise money for his ventures by emphasizing PRC national policies that encouraged China’s AI innovation industry to potential donors. These policies included the State Council 2017 “Notice on the Development of the New Generation of Artificial Intelligence” and a policy document titled “Interim Measures for the Management of Generative AI Services” as examples for how AI was a government priority and that Ding’s investors would therefore align with the CCP’s ambitions. Ding’s exploitation of his position at Google, combined with engagements with Chinese investors and his use of policy knowledge highlight the network connecting China’s commercial, government, espionage, and tech arenas.

Ding’s case underscores the persisting incentives for individuals to steal IP despite the risk of discovery and prosecution. It also highlights the delicate balance between hiring talent, protecting employees from approaches by external bad actors, and ensuring internal security to prevent IP theft. This means that private enterprises need to take insider threats seriously to protect against potentially devastating market and shareholder losses from lost IP or reputational damage. As Palantir CTO Shyam Sankar remarked, increasingly tense US-China competition means that, for corporations, “the time to mobilize has come.” Failure to do so will bring not only economic losses, but also political attacks against corporations that are highly likely to increase under the new administration.

Analysis

President Trump has repeatedly stressed that the US needs to “take back” the Panama Canal from Chinese control, his claims reflecting long-standing US concerns about China’s growing influence in the country. At any given time, about 40 Chinese companies operate in Panama across multiple sectors, many of which are seen as a challenge to traditional US dominance in the region. Secretary Rubio’s visit to demand that the government of Panama reduce China’s influence led to Panama’s withdrawal from China’s Belt-Road Initiative. China objected to this outcome. While Panama’s could set a precedent, countries like Brazil do not necessarily need to join the BRI to receive investments. Both the US and China see their contest for international influence as zero sum, which makes it difficult for third countries to play both sides. 

Panama is special, however, because of the canal. Businesses relying on Chinese trade with or investment in Panama need to be prepared to adapt. Likewise for US businesses not present in Panama, increased pressure from the US and China to restrict access to the canal could affect trade routes, supply chain logistics, and investment opportunities. Even the threat of a Canal shutdown could disrupt supply chains, as the Canal facilitates 57.5 percent of container shipments from Asia to the US East Coast and nearly six percent of all global trade. Panama is therefore not only an early focus of the Trump Administration's geopolitical flexing, it is also a test case for how geopolitics might shape the future global corporate landscape.