US business leader in China during Trump 1.0 boosts Trump 2.0

Kerr Gibbs had a unique, up-close look at US business with China during the first Trump administration, or Trump 1.0. He was an investment banker in the country, leading the American Chamber of Commerce in Shanghai as chairman from 2016 to 2018 and then serving as president from 2019 to 2021.

These days, he is based in California, teaching at the University of San Francisco and traveling back to China regularly as an investor and consultant while writing a second book on China, Beneath the Dragon’s Belly: China’s Conflicts, Controversies and Vulnerabilities. ” This 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 expected tariffs on Chinese imports to the U.S. to rise after Donald Trump’s election triumph. The increases will come alongside accelerated “unbundling” by US companies trying to avoid tariffs while at the same time seeking to expand their businesses in the world’s No. 2 economy.

Given Trump’s past record of raising tariffs on Chinese goods and recent statements on the campaign trail, Gibbs believes “it’s very clear that tariffs will be part of how he approaches this. I really don’t see a detour. I haven’t seen any progress (toward lower tariffs) under Biden. Whose fault is it, China or the US? It’s hard to say. Maybe it was misaligned expectations.

Gibbs added that he is currently reading Trump 1.0 trade representative Bob Lighthizer’s book, “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 this environment, Gibbs’ current advice to American businesses with sales and long-term investments in China is short. “Tighten up. Trump will accelerate the separation. Multinational companies will have to structure their business in China even further into 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 both administrations,” Gibbs said.

“Big multinationals are not withdrawing from China as a market. Despite the low growth and low profit, it is still a large and attractive market, with a lot of innovation,” he said. Still, Gibbs continued, “I see a climate on both sides that encourages separation. Given the tariffs, if I am an American multinational company in China, I will have to insulate myself from US-China trade tensions.

Additionally, Gibbs sees a repeat of Trump 1.0 in that the tariffs will spur more investment that would otherwise be in China, 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 in the looming change in the White House. Despite geopolitical tensions, the two remain among their biggest trade and investment partners. American companies with major 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 American business groups. Chinese investors in the US include BYD, one of China’s largest automakers, Fuyao Glass, one of the world’s largest auto glass makers, 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 target Europe and countries with lower tariffs, 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 targeted Europe and put a trade deal on the table, but Beijing failed to effectively target European markets. On some level, this should not be surprising because the problems are the same – dumping, subsidies and other unfair trade practices. European governments reacted in much the same way as the US government. Under Trump 2.0, will Beijing learn its lessons and be able to do it more effectively?”

Facing an increasingly difficult export environment, Beijing’s policies that boost domestic growth will become even more important, Gibbs said. “The economy is in trouble – there’s no doubt about that. In my last few trips to China, I definitely felt that consumer confidence just hasn’t returned. The employment problem is serious, as is the national debt. Incentives are wanted, but the question is, do they have the money? This is a problem.”

In the short term, Trump’s tough rhetoric will make it harder for Beijing to appear more cooperative on trade with the U.S. despite its economic problems at home. “After all of Trump’s tough rhetoric on China, Beijing will have to back down and show it’s 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 needs 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 ready to cooperate, 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? Aircraft and semiconductors. Both sectors are problematic. Boeing is struggling. Is Beijing really going to say, “Yes, I’ll buy your broken planes?”

Computer chips won’t get any easier. “Semiconductors face export controls. So there is a strange conundrum. The U.S. says you 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. Dropping the tariffs would be seen as weakness vis-à-vis China. Now the tables (have) turned. Biden put all these export controls on dual-use products like semiconductors. Then Trump comes in and says, “We really don’t need them, I really want to focus on trade and fix our trade deficit. I want to sell a bunch of these semiconductors, so I’m going to remove all these export controls.

“He certainly could” change Biden’s approach, Gibbs said. “But is it politically feasible, given that he is the tough guy on China? It’s an open question,” he said. “Semiconductor blocking is important for military and strategic reasons, but Trump couldn’t seem to care less.”

“In the 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 it to turn out this way, but let’s try this way for a while,” he said. “Maybe things will turn around.”

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