US business leader in China during Trump 1.0 size up Trump 2.0

Ker Gibbs had a unique up-close view of US 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 to 2021.

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

In a telephone interview, Gibbs said he expects tariffs on Chinese imports into the US to rise as a result of Donald Trump’s election victory. The increases will come alongside an accelerated “unbundling” by US companies trying to avoid the consequences of the tariffs while at the same time looking to expand their business in the No. 1 economy. 2 in the world.

Given Trump’s past record of raising tariffs on Chinese goods and recent campaign statements, Gibbs believes that “it’s very clear that tariffs will be part of how he approaches this. I really don’t see an off ramp. I didn’t see any progress (towards lower rates) made under Biden. Whose fault is it – China or the US? It is difficult to say. Maybe they don’t live up to expectations.”

Gibbs added that he is currently reading a book by Trump 1.0 trade representative Bob Lighthizer, “No Trade Is Free.” “That will be the plan. 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 long-term investments in China is succinct. “Prepare yourself. Trump will accelerate disengagement. Multinationals will have to structure their business in China even more in silos, with China operations completely separate from the rest of the world. This has been going on for a while, and probably would have continued under any administration,” Gibbs said.

“Big multinationals are not pulling out of China as a market. “Despite the low growth and low profit, it’s still a big and attractive market, with a lot of innovation happening,” he said. Still, Gibbs continued, “I’m seeing the climate on both sides fueling division. Given the tariffs, if I am an American multinational in China, I will have to insulate myself from the US-China trade tension.”

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

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

A key question going forward will be how Beijing manages to respond to any new US tariffs, Gibbs said. One response in Trump 1.0 was to try to pivot to Europe and lower-tariff countries, he noted. “What we saw in Trump 1.0 is that China didn’t do so well. At the start of Trump 1.0, China made a move toward Europe and put a trade deal on the table, but Beijing has not effectively targeted European markets. At some level, this should not be surprising because the issues are the same – dumping, subsidies and other unfair trade practices. European governments reacted in much the same way as the American government. Under a Trump 2.0, will Beijing have learned any lessons and be able to do so 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 doubt about that. In my last two trips to China, I definitely felt that consumer confidence just hasn’t returned. The employment problem is serious, as is the government debt. Stimulus is required, but the question is: do they have the money? This is a problem.”

In the near term, Trump’s tough rhetoric will make it difficult for Beijing to appear more cooperative in trade with the US, despite its own economic problems at home. “After all of Trump’s tough rhetoric on China, Beijing will have to step back and show that it is not afraid of the big bad wolf. But in the medium to long term, what can Beijing do to show cooperation with the Trump administration? After all, Beijing has to do something about the economy, and the US is still its most important trading partner.”

“But that’s also a problem,” said Gibbs, whose previous career included posts at Apple and HSBC. “When Beijing starts to feel 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 these industries are problematic. Boeing is struggling. Will Beijing really say, ‘Yes, I’ll buy your broken planes?’

Computer chips won’t get any easier. “Semiconductors run afoul of export controls. So there’s a weird conundrum there. The US is saying buy more stuff from us, but you can’t have our semiconductors,” Gibbs noted, referring to Biden’s export controls.

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

“He can certainly” change Biden’s approach, Gibbs said. “But is it politically feasible, given that he is the tough guy in China? This is an open question,” he said. “Semiconductor blocking is important for military and strategic reasons, but Trump seems to care less about it.”

“Long term, I’m still optimistic that China will always be a big market and an important country for the United States,” Gibbs said. “I didn’t want or expect things to go this way, but let’s try it this way for a while,” he said. “Maybe things will change.”

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