If Trump's actions lead to a response from China, U.S. companies may be targeted.

• The hawkish stance of President-elect Donald Trump's trade and foreign policy team towards China is being taken.
• The fear of a hardline approach hindering their growth in China and making them targets of retaliation is intensifying among U.S. companies.
• China's response may involve economic adjustments, diplomatic actions, or security measures.

As President-elect Donald Trump's trade and foreign policy team adopts a hawkish stance toward China, U.S. companies are becoming increasingly worried that a hardline approach could harm their prospects in the world's second-largest economy and make them vulnerable to Chinese retaliation.

If Trump follows through with his threat to impose 60% tariffs on China and reduce dependence on the country, it will cause chaos. Companies will have to search for alternative suppliers, shoppers will face higher prices, and many experts predict that this will result in job losses.

The Chinese government could respond to American businesses with an enlarged set of tools.

"According to Scott Kennedy, senior advisor at the Center for Strategic and International Studies, the Trump administration's actions may be perceived as economic war. If this interpretation is accurate, China might respond with more forceful measures than just tariffs."

Kennedy stated that actions could range from economic changes to diplomacy and security, and China may respond with force.

The growing tension between the U.S. and China increases the likelihood of public backlash due to rising Chinese nationalism, and the Chinese government's strict control over information has resulted in consumer boycotts of international brands.

"The worst part is that consumer brands that are not strategic and not controversial, and would not be subject to export restrictions, may still be punished by local consumers due to their nationality," said Michael Hart, president of the American Chamber of Commerce in China. "Since Covid, companies have been looking to diversify and strengthen their supply chains, but there are still no easy and reliable alternatives to the supply chains and manufacturing that has developed in China over the past decades."

China's retaliation toolkit

In response to U.S. tariffs during Trump's first term, the Chinese government imposed tariffs on imports from the United States.

A tit-for-tat tariff battle between the U.S. and China could lead to a permanent loss of revenue and force businesses to cut jobs and investment plans, resulting in as many as 801,000 net job losses by 2025, according to a report by the U.S.-China Business Council in collaboration with Oxford Economics.

The Oxford report predicted that Nevada, Florida, and Arizona would be among the states most affected by tariffs due to their heavy reliance on consumer demand. Additionally, manufacturing states such as Indiana, Kansas, Michigan, and Ohio would also be vulnerable. In the 2024 election, swing states Nevada, Arizona, and Michigan all flipped to Trump, helping him secure another term in the White House.

In the recent trade conflict, China ceased purchasing agricultural goods from the U.S., particularly soybeans, which negatively impacted rural regions where Trump's support is strongest.

Beijing may use its influence over U.S. agricultural purchases as leverage if it feels threatened again, according to James McGregor, a China business consultant for three decades.

McGregor stated that if alternative supplies are available, China may shift away from American farmers where they can, as the country is already focused on reducing its dependence on U.S. farm products.

Now, China's biggest supplier of corn is Brazil, having surpassed the U.S. two years ago.

Beijing could expand its retaliation tactics to encompass attacking American businesses based in China.

Since Trump's first term, the business climate in China has become more restrictive. Despite the Chinese government's efforts to attract foreign businesses, a survey by AmCham China revealed that 39% of companies felt less welcome in China.

Tougher laws, tightening regulations

The possibility of legal and regulatory changes in China poses a threat to U.S. companies.

China's recent export control revisions have limited access to critical metals for the American clean energy and semiconductor industries.

During a potential second term, China may aim to undermine the U.S. industry by depriving it of crucial minerals and components, as predicted by analysts.

Beijing has strengthened its laws, including an anti-foreign sanctions law, which leads to investigations, penalties, and limitations on business activities within the country.

Before the U.S. election, Beijing had already shown signs of targeting certain American companies. For instance, Ralph Lauren, the owner of Calvin Klein, is currently under investigation due to this law.

The updated anti-espionage law in China has been criticized by international business groups, including AmCham China, for its ambiguity in the policy.

The law has resulted in the detention of executives and staff, as well as raids on international companies, and has facilitated the imposition of exit bans on accused individuals, preventing them from leaving the country.

Concerns exist that the daily regulatory procedures in China may become more challenging under a heightened retaliatory atmosphere.

Xi Jinping has further consolidated power since the start of Trump's presidency.

Lower-level officials may interpret regulations for permits, safety checks, licensing, and other approvals more harshly if Xi signals that U.S. companies are out of favor, experts say.

McGregor stated that American companies in China may face retaliation, which could result in their gradual exclusion from the Chinese market.