As Trump eyes a second term, China braces for the impact on trade, Taiwan, and tech competition. With rising tariffs and growing tensions, both businesses and policymakers are preparing for the uncertainty ahead. This newsletter explores the risks and strategies shaping U.S.-China relations under Trump 2.0.

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As the world anticipates the direction of the U.S.-China relationship under a potential second term for President Donald Trump, both Chinese business owners and policymakers are carefully monitoring the unfolding developments. With issues ranging from tariffs to the contentious Taiwan question, a complex web of risks and opportunities could shape the future of bilateral relations between these two global superpowers. As President Trump prepares for another term, Chinese entities, from manufacturers to government officials, are bracing for an uncertain and potentially turbulent period.

This newsletter will explore the key challenges China faces under the Trump administration, shedding light on how businesses and political analysts are preparing for the uncertainties ahead.

Trade Relations: The Tariff Dilemma

One of the most pressing issues for Chinese business owners under Trump’s second term will undoubtedly be trade and tariffs. The 2018 imposition of 25% tariffs on Chinese imports had a significant impact on companies like James Cheng’s, who owns a factory in Foshan, China, manufacturing light fixtures. Cheng, who exports his products to the United States, faced the immediate challenges of increased costs due to tariffs. Despite this, he adapted by relocating some of his production to Thailand, a move taken by many in similar sectors to avoid the punitive trade measures.

Trump has signaled his intention to raise tariffs to 60% or more on Chinese imports in his second term, aiming to protect American industry and jobs. For Cheng, this would likely result in even higher production costs, which could ultimately be passed on to American consumers. Despite the looming threat of higher tariffs, Cheng remains unfazed, noting that worrying about the U.S. president’s actions will not benefit his business. He emphasizes that the costs of tariffs are typically borne by U.S. customers, whether products are exported directly from China or routed through alternative manufacturing hubs in Southeast Asia.

While businesses like Cheng’s are strategizing to mitigate the impact of tariffs, the larger concern for China’s policymakers is the potential long-term economic damage. Tariffs have been a central tool in Trump’s trade war strategy, and their continued use could threaten one of China’s most robust economic segments—exports. The possibility of a prolonged trade standoff between the U.S. and China under Trump 2.0 poses a significant challenge to Beijing’s efforts to maintain stable economic growth.

The Strategic Calculations in Beijing

For the Chinese government, the path forward under a second Trump administration remains fraught with uncertainty. On one hand, Chinese leaders, including President Xi Jinping, have expressed a willingness to cooperate with Trump, hoping to maintain stable bilateral relations. However, trade is just one aspect of the broader and more complex U.S.-China relationship. Beijing is carefully observing how the Trump administration will approach key issues such as Taiwan, technology, and military presence in Asia.

Analysts suggest that Chinese leaders are adopting a defensive stance in preparation for a potentially more combative second term for Trump. Wang Zichen, a research fellow at the Center for China and Globalization, explains that Beijing’s messaging indicates that the country may not play the cautious, calibrated game that it did during the first trade war. In fact, Chinese officials may be more inclined to use a wider array of retaliatory measures, including currency devaluation, punishments for U.S. companies operating in China, or leveraging their economic influence over U.S. allies.

Jude Blanchette, an expert on Chinese politics at the Center for Strategic and International Studies, also highlights that China has mapped out congressional districts in the U.S. and is prepared to target specific industries or politicians should tensions escalate. Beijing’s strategy will likely focus on retaliatory actions aimed at forcing the U.S. to reconsider its stance on trade and economic policy.

Taiwan: The Flashpoint of U.S.-China Tensions

Perhaps the most sensitive issue between the U.S. and China remains Taiwan. China considers Taiwan a breakaway province and has long stated its intentions to annex the island, though Taiwan has remained a self-governing democracy. Trump’s interactions with Taiwan have been a source of tension, particularly after his 2016 phone call with Taiwanese President Tsai Ing-wen, which angered Beijing.

In his second campaign, Trump has been vocal about his views on Taiwan, questioning why the U.S. should provide military assistance to defend the island. He has also expressed that China would not dare take aggressive action toward Taiwan due to his own unpredictability. In stark contrast, President Biden has firmly stated that the U.S. would come to Taiwan’s defense in the event of a Chinese attack.

The possibility of military conflict over Taiwan is a concern for both sides. While Trump’s rhetoric often suggests a willingness to avoid war, analysts believe that his unpredictability could play a role in shaping how Beijing perceives U.S. actions. Shen Dingli, a scholar of international relations in Shanghai, suggests that Trump’s approach to Taiwan will depend heavily on his advisors and political alignments within the Republican Party. Figures like former Secretary of State Mike Pompeo, who has openly advocated for formal U.S. diplomatic recognition of Taiwan, could push Trump’s administration toward a more confrontational stance with China over Taiwan.

Technology and Competition: A Cold War in the Digital Realm

In addition to trade and Taiwan, technology competition will continue to be a flashpoint between the U.S. and China under Trump 2.0. Over the past several years, the U.S. has taken significant steps to limit China’s access to critical technologies, including imposing sanctions on Chinese tech giants like Huawei and ZTE. Trump has also expressed a desire to push back against China’s growing technological influence, particularly in the realm of 5G and artificial intelligence.

China has made substantial investments in technological advancements, and the government views technological self-reliance as key to its long-term national security and economic prosperity. Trump’s policies may push China to accelerate its efforts to develop alternative technologies and reduce its dependence on U.S. firms. However, the technological cold war between the two nations could have far-reaching implications for global supply chains, innovation, and economic interdependence.

Conclusion: A Pragmatic Yet Unpredictable Future

As President Trump prepares to return to office, China faces an uncertain future in its relationship with the United States. The key issues of trade, Taiwan, and technological competition will dominate the bilateral agenda. While Chinese businesses are already adapting to potential challenges posed by tariffs and economic restrictions, Beijing must carefully navigate the unpredictability of Trump’s policies.

The prospect of a more aggressive stance from the U.S., coupled with the complex dynamics of Taiwan and global technology competition, means that China’s leadership will need to be flexible and strategic. Although Trump’s pragmatism and transactional approach may present opportunities for negotiation, his unpredictability presents a significant risk. In this environment, China will continue to assess and prepare for the next phase of its relationship with the United States, hoping for stability, but bracing for potential challenges that could alter the global economic and political landscape.

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Disclaimer: This newsletter is for informational purposes only and should not be construed as financial or political advice.

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