“Brace Yourself”: U.S. Business Leader In China During Trump 1.0 Sizes Up Trump 2.0

Ker Gibbs had a uniquely close-up view of U.S. business with China during the first Trump administration, or Trump 1.0. He was an investment banker in the country, led the American Chamber of Commerce in Shanghai as chairman from 2016 to 2018, and then served as president from 2019 through 2021.

These days, he is based in California, teaching at the University of San Francisco and traveling regularly back to China as an investor and consultant while writing a second China-themed book, “Under the Dragon’s Belly: China’s conflicts, contradictions, and vulnerabilities.” It will add to his first title, which he edited and co-authored, “Selling to China: Stories of Success, Failure, and Constant Change.”

In a telephone interview, Gibbs said he expects tariffs on Chinese imports to the U.S. to rise in the aftermath of Donald Trump’s election triumph. The increases would come along with accelerated “decoupling” by American companies trying to avoid tariff fallout while at the same time seeking to expand their business in the world’s No. 2 economy.

Given Trump’s earlier record of raising tariffs on Chinese goods and recent campaign statements, Gibbs believes “it’s very clear that tariffs will be part of how he approaches this. I don’t really see an off-ramp. I didn’t see any progress (toward lower tariffs) being made under Biden. Whose fault is that — China or the U.S? It’s hard to say. Maybe it’s been mismatched expectations.”

Gibbs added that he is currently reading a book by Trump 1.0 trade representative Bob Lighthizer, ‘No Trade Is Free.’ “That’s going to be the blueprint. It reads like a job application,” he said. “I have no reason to believe that Lighthizer will not be part of the new administration.”

In that environment, Gibbs’ current advice to American businesses with sales and longstanding investments in China is concise. “Brace yourself. Trump will accelerate decoupling. Multinationals will need to structure their China business even more into silos, with China operations completely separate from the rest of the world. That’s been happening for a while, and it probably would have continued under either administration,” Gibbs said.

“Large multinationals are not pulling out of China as a market. Despite the low growth and low profit, it’s still a large and attractive market, with lots of innovation going on,” he said. Yet, Gibbs continued, “I’m seeing the climate on both sides driving the separation. Given the tariffs, if I’m a U.S. multinational in China, I’ll have to insulate myself from U.S.-China trade tension.”

Gibbs in addition sees a repeat of Trump 1.0 in that tariffs will drive more investment that otherwise would have been in China into Southeast Asia, Mexico and India. “Those investments are going to happen, and just like in Trump 1.0, very few manufacturing businesses will return to the United States,” he predicted.

The stakes are big for both the U.S. and China from the looming change in the White House. Despite geopolitical tensions, the two remain among each other’s top trade and investment partners. American companies with large investments and supply chains in China include Telsa, GM and Dow. The American Chamber of Commerce in Shanghai has nearly 3,000 members, one of the largest overseas U.S. business groups. Chinese investors in the U.S. include BYD, one of China’s largest auto makers, Fuyao Glass, one of the world’s biggest auto glass manufacturers, and Haier, a big Chinese appliance producer.

A key question going forward will be how Beijing manages reacts to any new U.S. tariffs, Gibbs said. One response in Trump 1.0 was to try to pivot to Europe and countries with lower tariffs, he noted. “What we saw in Trump 1.0 is China didn’t do that well. Early in Trump 1.0, China made a move to Europe and put a trade agreement on the table, but Beijing has not effectively pivoted to European markets. On some level, that shouldn’t be surprising because the issues are the same – dumping, subsidies, and other unfair trade practices. European governments reacted pretty much the same way that the U.S. government has. Under a Trump 2.0, will Beijing have learned any lessons and be able to do that more effectively?”

Facing an increasingly difficult export environment, Beijing’s policies that stimulate domestic growth will become even more important, Gibbs said. “The economy is in trouble — there’s no question about it. On my last couple of trips to China, I’ve definitely felt that consumer confidence just hasn’t come back. The employment problem is serious, as is government debt. Stimulus is called for, but the question is: do they have the money? That’s a problem.”

In the near term, harsh Trump rhetoric will make it difficult for Beijing to look more cooperative on trade with the U.S. despite its economic problems at home. “After all of the tough Trump rhetoric on China, Beijing is going need to push back and show they’re not afraid of the big bad wolf. But in the medium to longer term, what can Beijing do to show cooperation with the Trump administration? Beijing ultimately needs to do something about the economy, and the US is still its most important trading partner.”

“But that’s a problem, too,” said Gibbs, whose earlier career included posts at Apple and HSBC. “When Beijing gets around to feeling cooperative, they will ask the Americans, ‘What can we buy?’ China already imports a lot of beans and corn. What else does America sell in large quantities? Airplanes and semiconductors. Both of those industries are problematic. Boeing is struggling. Is Beijing really going to say, ‘Yes, I’m going to buy your broken planes?’”

Computer chips won’t be easier. “Semiconductors bump into the export controls. So there’s a weird conundrum there. The U.S. is saying buy more stuff from us, but you can’t have our semiconductors,” Gibbs noted, referring to the Biden export controls.

“It will be interesting to see if Trump 2.0 does what Biden did. When President Biden took office in 2021, he didn’t drop the Trump tariffs, even though he had campaigned against them. Dropping the tariffs would have been seen as weak against China. Now the tables (have) turned. Biden has put all these export controls on dual-use products, like semiconductors. Does Trump then come in and say, ‘We don’t really need those, I really want to just focus on trade and fix my trade deficit. I want to sell a bunch of these semiconductors, so I’m going to drop all these export controls.”

“He certainly could” change Biden’s approach, Gibbs said. “But is it politically feasible, given that he’s the tough guy on China? That’s an open question,” he said. “The block on semiconductors is important for military and strategic reasons, but Trump seems to care less about that.”

“Long term, I’m still optimistic that China will always be a large market and an important country to the United States,” Gibbs said. “This isn’t how I wanted or expected things to turn out, but let’s try it this way for a while,” he said. “Maybe things will turn around.”

General Atlantic Chairman Upbeat On China Outlook Despite Tension

U.S.-China Politics Hurt Fight Against A Common Enemy: Cancer (forbes.com)