By Eric Vandenbroeck and co-workers

China Is Readying for Known Challenges and Unknown Risks

As U.S. President-elect Donald Trump prepares to return to the White House, global observers watch with a mix of nervousness and caution. Conversations with Chinese academics, economists, and policy insiders reveal a far more nuanced outlook as Beijing dissects the implications of a second Trump presidency. Trump’s 2016 victory caught Beijing off guard, triggering a scramble to recalibrate. But four years of navigating tariffs, tech restrictions, and trade tensions have given Chinese President Xi Jinping and his advisors a deeper understanding of the U.S. president’s playbook.

For China, Trump’s return might introduce fresh risks and some limited yet meaningful opportunities within an increasingly complex geopolitical landscape. Lessons from Trump’s first term offer some insight, but the world has changed significantly: China’s economy has softened, the COVID-19 pandemic has left a lasting mark, and the Russia-Ukraine conflict has reshaped alliances. Even Trump’s own cost-benefit calculus has evolved, and his policies now reflect the unique dynamics of a second-term presidency. As one advisor put it, quoting an ancient adage Xi himself once cited, “The wise adapt to the times, and the astute respond to circumstance.”

Beijing’s high-stakes strategy for navigating a second Trump administration involves, in the words of national security heavyweight Donald Rumsfeld, both the known and the unknown in different quantities. Up top is the most familiar—the “known knowns,” and chief among these is tariffs.

Unlike in 2016, Beijing now faces Trump’s return with a sharper sense of what to expect, thanks to his prior policies. Chief among anticipated challenges are Trump’s intensified “reshoring” agenda and potential tariffs—such as 10-20% on all imports and an additional 60-100% on Chinese imports. These would pose direct threats to China’s export-driven economy at a time when the country is still struggling with a slow recovery, real-estate instability, and weakened consumer demand.

Chinese experts foresee a hardline cabinet in a second Trump term, with figures like trade hawk Robert Lighthizer indicating a more protectionist, confrontational approach. Unlike Trump’s first administration, where voices like Steve Mnuchin occasionally tempered his policies, a unified hawkish team would likely leave little room for moderation. Yet Beijing has been preparing—even if not always successfully—its “dual circulation” strategy aims to boost domestic consumption and curb export reliance, but results have stalled: Domestic demand lags, and export levels remain steady. This strategic pivot is evident in a surge of Chinese investment in Southeast Asia, as Beijing seeks to diversify its supply chains and shield its economy from trade shocks.

To reinforce its position, Beijing has ramped up countermeasures against U.S. companies, shifting from firing warning shots to dealing concrete blows. Skydio, the largest U.S. drone manufacturer, faces critical supply chain disruptions after China sanctioned it over sales to Taiwan’s National Fire Agency, forcing the company to ration batteries. PVH Corp., the parent company of Calvin Klein and Tommy Hilfiger, now risks placement on China’s “unreliable entity list” for allegedly boycotting Xinjiang cotton, jeopardizing growth in a key market. Intel is also under scrutiny as the Cybersecurity Association of China pushes for an investigation into alleged security flaws, threatening Intel’s hold in a market that accounts for nearly a quarter of its revenue. These sanctions and probes reveal a bolder stance, showing that Beijing’s arsenal for retaliation is far stronger than it was during Trump’s first term.

Chinese experts also see potential blowback for the U.S. economy. A 60% tariff could push U.S. inflation upward, potentially forcing the Federal Reserve toward further rate hikes. Within Chinese policy circles, some view this inflationary risk as a possible check on Trump’s ambitions, noting that rising borrowing costs and asset volatility could dampen his support base for aggressive tariffs.

Beyond tariffs, Beijing is keenly aware of the limitations faced by alternative manufacturing hubs in Southeast Asia and Latin America. Regional bottlenecks—such as labor shortages, infrastructure challenges, and resource constraints—may prevent these regions from fully absorbing production shifts away from China. Ironically, these limitations could exacerbate U.S. inflation if Trump’s tariffs disrupt established supply chains without viable alternatives.

Trump’s anti-globalization stance is familiar, but the ideological shifts it ignites fall into what strategists call “unknown knowns”—factors that are understood but whose full impact remain uncertain. For Beijing, Trump’s isolationist rhetoric resonates with a rising tide of populism across Europe and parts of Asia, such as Italy, Hungary, and the Philippines, creating ideological undercurrents that both challenge and complicate China’s global aspirations.

Some nationalist voices in China view Trump’s “America First” approach as an opportunity. The logic is simple: If the United States pulls back from global frameworks or retreats from alliances like NATO, other nations may look to China as an alternative. But Beijing’s seasoned policy experts approach this notion with sober realism. While China recognizes the potential for Western alliances to fragment, it also understands that a wholesale “pivot” toward Beijing is unlikely.

European leaders may be frustrated with Trump’s isolationism, but they remain wary of China’s growing influence—especially given Beijing’s reluctance to condemn Russia’s actions in Ukraine. This perceived tacit support for Russia has deepened European skepticism, fueling doubts about whether China’s expanding reach aligns with Europe’s strategic interests.

 

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