Trump Won! What Does That Actually Mean for U.S. Companies Trading with China?

This past month has been fascinating, watching the election unfold and observing how both parties have tackled the issue of trade with China. It's also interesting to note how companies in China are reacting outside of media portrayals. It feels like the way businesses operate and maintain relationships will ultimately determine what actually happens next.

We can see that both the Harris administration and the Trump administration were inclined to implement tariffs, with similar agendas. Harris focused on areas where the U.S. and Mexico have an infrastructure presence, such as solar energy, vehicles, chips, and electrical products. Trump, on the other hand, proposed a broader tariff increase across the board. This bipartisan interest in tariffs raises the question: is this a signal to decrease reliance on China, or an attempt to push domestic manufacturing forward, allowing it to compete more favorably?

I think it's a bit of both.

The “Chips and Electronics” Sector

Cybersecurity is a significant concern in the U.S. and the broader West. Thus, the focus on encouraging domestic manufacturing for chips and electronics goes beyond economics; it also grants the government more control over the technology and information within these products. This shift would bolster manufacturing and enhance national security. For China, it could mean a significant loss, as the U.S. imported $126.68 billion in electrical and electronic equipment from China in 2023—22.7% of China’s total exports. This potential loss could motivate China to negotiate on cybersecurity matters.

What the Trump Administration May Seek in Negotiations

The Trump administration would likely aim to negotiate with China on several key issues in future trade talks:

1. Intellectual Property Protection: Strengthening IP rights in China.

2. Technology Transfer: Addressing forced technology transfers from U.S. to Chinese firms.

3. State Subsidies: Tackling subsidies that give Chinese companies an edge.

4. State-Owned Enterprises: Addressing the dominance of Chinese state-owned enterprises.

5. Enforcement Mechanisms: Establishing systems to review China’s compliance.

6. Market Access: Expanding access for foreign investment in China.

7. Currency Practices: Addressing currency manipulation.

8. Structural Reforms: Encouraging broader changes in China’s economic policies.

9. Agricultural Purchases: Ensuring China’s commitment to U.S. agricultural purchases.

10. Tariff Reductions: Negotiating further tariff adjustments.

These negotiations would likely balance the U.S.'s trade concerns with China’s economic interests and sovereignty.

A Perspective from China

During a recent trip to China, I found citizens were curious about why the West “hates” China. I explained it’s not about hate but about cybersecurity concerns. I likened it to making a deal with a supplier on a new design, only to find out that the supplier shared it with others for personal gain. The right Chinese suppliers honor agreements, so this comparison resonated.

This experience made me wonder whether the Chinese government or individual businesses hold the real power to effect change. Chinese companies appear eager to maintain U.S. trade relationships, exploring options like investing in factories outside China (in Vietnam, Cambodia, or Mexico) or lowering prices to minimize the impact on U.S. partners.

China’s Ministry of Finance recently announced a 10 trillion yuan ($1.4 trillion) debt swap program to relieve local government debt and stabilize the economy without direct stimulus. This strategic move could ease fiscal pressures and provide resources for future economic support.

Domestic Market Growth Potential

If retail prices rise, the domestic and alternative markets could become more competitive. China held the largest market share in U.S. container imports in 2023 (35.8%), but increased prices might level the playing field. Both the Harris and Trump strategies highlighted this potential, aiming to bolster ally economies without direct U.S. investment.

So, would companies reliant on Chinese suppliers be pushed aside? Not necessarily. While this shift opens opportunities for other countries to compete, small businesses don’t have to abandon trusted Chinese suppliers. Instead, they could test products from new markets alongside their best-sellers.

Five Actionable Steps to Ride the Wave

1. Check Margins: Ensure they can withstand a 60% duty increase.

2. Increase Retail Prices: Track whether prices are rising in your niche.

3. Review Supply Chain: Explore early ordering and 3PL costs to save on tariffs.

4. Negotiate with Suppliers: Strong relationships could help absorb costs.

5. Identify Cost-Saving Areas: Examine shipping, packaging, and forecasting costs.

Ultimately, while it’s uncertain what Trump has in store, it seems less about severing ties with China and more about broadening market options. So let’s cast that wider net!