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The "America First" agenda under President Trump’s second term, particularly its trade and tariff policies, will significantly impact China's economy, trade dynamics, and geopolitical strategy. While these policies will cause immediate disruptions, they will also catalyze long-term structural adjustments in China's global trade patterns, technological focus, and economic planning. As these shifts continue to unfold, corporate directors must stay informed and proactively safeguard their companies' interests. Moreover, with the changing global landscape and supply chain strategies, companies should consider the intersection of natural security with ESG, Sustainability, and Climate.
Key Takeaways:
- When preparing for Trump’s second term, board directors must recall China’s reaction to Trump 1.0 tariffs and trade policies as they consider immediate and medium-term actions
- As the trade wars escalate, China will continue to leverage its supply of rare metals in negotiations, these metals are critical to the vitality of the US economy as they are used in a variety of technologies, such as computer chips and military applications
- Boards should immediately call for enhanced supplier due diligence, traceability, and other labor and ESG factors as they pertain to their supply chains and China dependency
How did China react to Trump 1.0 tariffs and trade policies?
China adopted a multifaceted approach to counter the economic pressures of U.S. tariffs while maintaining its position on the global stage. Key strategies included:
- Retaliatory tariffs. Targeted U.S. goods, such as agricultural products (e.g., soybeans, pork), automobiles, and chemicals, disrupting global supply chains and hitting U.S. exporters hard, particularly in politically significant states
- Currency devaluation. Depreciated the yuan to make Chinese exports more competitive, partially offsetting tariff impacts. This move, however, drew criticism from the U.S. as “currency manipulation” and created internal challenges like capital flight and inflation risks
- Supply chain diversification. Shifted manufacturing to lower-cost nations in Southeast Asia, including Vietnam and Thailand, to circumvent tariffs and optimize cost efficiencies
- Domestic consumption focus. Emphasized internal economic growth through strategies like the “dual circulation” policy, which encouraged self-reliance and reduced dependence on export markets
- Strategic stockpiling. Built reserves of essential materials (e.g., soybeans, rare earth minerals) to weather supply disruptions and maintain production capabilities
- Global trade diplomacy. Strengthened ties with Europe, Asia, and Africa via initiatives like the Belt and Road Initiative (BRI) and agreements such as the Regional Comprehensive Economic Partnership (RCEP)
- Technology independence. Intensified investments in domestic innovation, focusing on semiconductors, artificial intelligence, and 5G networks to reduce reliance on U.S. tech
- Phase one trade deal compliance. Committed to purchasing U.S. goods but fell short due to the pandemic’s impact, highlighting ongoing trade tensions and mistrust
- Nationalism and anti-U.S. sentiment. Framed the U.S. as an aggressor, fostering domestic solidarity and projecting strength globally
Legal challenges. Leveraged international mechanisms like the World Trade Organization (WTO) to contest U.S. actions while enhancing its intellectual property protections to address external criticisms
What the world expects from China in response to Trump 2.0 tariffs
Should a Trump 2.0 administration reintroduce or escalate tariffs, China’s likely responses may include:
- Retaliatory tariffs. Targeting politically sensitive U.S. sectors, with calibrated strategies to minimize domestic impact while maximizing pressure on U.S. exporters
- Currency adjustments. Further devaluation of the yuan to cushion tariff effects, sparking renewed accusations of currency manipulation
- Technological decoupling. Accelerating investments in domestic technology to reduce reliance on U.S. suppliers and build independent supply chains
- Enhanced trade partnerships. Expanding trade alliances within the RCEP and Belt and Road regions to offset U.S. market dependence
- Regional economic integration. Strengthening ties within Asia-Pacific to create a resilient, interconnected economic network
- Supply chain diversification. Encouraging outbound investments in Southeast Asia and other regions to shield exports from U.S. tariffs
- Legal and diplomatic maneuvers. Leveraging multilateral platforms to contest U.S. tariffs and position itself as a champion of free trade
- State-controlled market strategies. Boosting the role of state-owned enterprises (SOEs) in tariff-affected sectors through subsidies and strategic investments
- Soft power and geopolitical strategy. Using cultural diplomacy and alternative governance models to counter U.S. influence in international institutions
- Nationalistic messaging. Utilizing U.S. actions to rally domestic support, framing trade disputes as part of China’s rise against external opposition
- Cybersecurity and espionage. Intensifying efforts to counteract U.S. restrictions on Chinese tech companies through cyber tactics
Companies that will be most impacted
Although the list will continue to evolve as certain companies are successful in exceptions and influence policy, analysts expect the following companies to be impacted by tariffs in the greatest magnitude.
Governance considerations for company boards
Industrial companies’ Boards of Directors must adopt a proactive, strategic approach to prepare for and navigate the complexities arising from potential Trump 2.0 tariffs and China’s likely responses. This preparation should address supply chain resilience, geopolitical risks, financial impacts, and stakeholder engagement:
- Anticipate and project financial impacts. Boards should ensure management has scenario analyses that include increased costs due to higher tariffs on raw materials, components, and finished goods sourced from or exported to China. Supply chains will potentially have bottlenecks or delays that might cause operational disruptions, and retaliatory actions might affect export markets or production inputs
- Diversify supply chains. Many companies are already considering diversifying their supply chain or regionalizing it. Exploring alternative manufacturing hubs in Vietnam and other parts of ASEAN, Mexico, India or other cost-competitive regions are under consideration as seen by actions taken by Apple and Tesla. Nearshoring opportunities to strengthen supply chains and ensure compliance with any US reshoring incentives should be a topic of discussion at the Board table. Boards and Management teams should consider fostering partnerships with trusted suppliers, customers, and governments to mitigate risks to supply chain
- Embed ESG and Sustainability principles in a redesign for agility. Consider designing for sustainability, circularity (reduction of waste), and emissions reduction at the origins of replanning supply chain agility and optimization. As operations move away from China, consider how to launch at other sites with Sustainability not as a bolt-on, but as a design principle
- Evaluate pricing strategies. Tariff engineering, capital allocation for hedging mechanisms, and regular reviews of pricing strategies should be considered
- Revamp human capital planning. As reshoring and automation are considered, labor costs and access to talent will be growing issues in regions of interest for most companies. Adequate investment in R&D and technology partnerships will help reduce the time required for talent and operational readiness
- Enhance global trade compliance & IP protection. Most importantly, a global trade compliance oversight should be considered. Maintaining strong IP protections while regularly reviewing internal audit findings related to cross border trade compliance will become a focus for most such boards
Industrial companies’ Boards must adopt a multifaceted strategy to navigate the challenges posed by a shifting global trade landscape. By emphasizing resilience, innovation, compliance, and stakeholder engagement, Boards can position their companies to mitigate risks and capitalize on emerging opportunities. Preparing for these scenarios is not just about survival—it’s about building a competitive edge in a volatile global economy.
What China’s retaliation means for National Security and its connection to Sustainability, ESG, and Climate for Industrial companies?
As Trump’s second administration challenges ESG investing, climate policies, the EPA’s authority, and more, practitioners in the Climate, Sustainability, and ESG are repositioning their efforts under the broader umbrella of national security. Supply chain resilience and transparency aren’t just a question for a corporate ESG report, they are also major questions as the U.S.-China trade conflict emboldens.
Questions for the boardroom:
- What due diligence has been done to evaluate tariff exposure to China, as well as Canada and Mexico? What about the specific materials that China is (or intends) to block for export to the U.S.? What workarounds are available?
- How have we increased supply chain agility during Trump’s first term to anticipate additional challenges and risks to key suppliers?
- What is our current extent of visibility and input traceability across all nodes of our supply chain in Asia as well as outside the U.S.?
- What opportunities does our company have to engage in pre-competitive advocacy with other industrial companies to influence policy changes or exclusions for critical minerals or inputs?
- How have we updated our financial projections to account for changes in demand, input pricing, supply chain delays, and other financial impacts to our bottom line?
- To what extent have we evaluated our supply chain for its resilience and overall susceptibility to climate risks?
- In pushing for greater supply chain agility, how can we also redesign our system and processes for reduced transportation emissions, decarbonization, and fair labor practices?
Other Telesto resources for Corporate Directors:
- Adapting to new trade realities: The impact of USMCA on CPG company board’s priorities
- What Canada and Mexico tariffs will mean for CPG companies – questions for the boardroom
- Trump 2.0 tariffs and preparedness for Industrial companies
- Navigating corporate climate action under a second Trump administration – 7 focal points for business leaders
- Faros, our climate risk assessment tool, helps your organization identify emerging climate threats as they become more common and disruptive and position your assets to protect operational continuity, hedge against rising insurance costs, meet regulatory disclosure requirements, and incorporate climate risk into asset acquisition and disposal.
Prism, our ESG benchmarking tool, helps your organization to rapidly strengthen its sustainability, climate, and ESG performance and disclosures through in-depth benchmarking of industry peers and identification of gaps and areas of distinction
