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Geopolitics

Trump 2.0: A catalyst for China’s next transformation?

Published 28 January 2025 in Geopolitics • 9 min read

Key themes of self-reliance, diversification, and technological leapfrogging are likely to emerge amidst a return to familiar policies against the backdrop of a changed world.

In a notable convergence of cryptocurrency, politics, and international finance, recent reports indicate that Justin Sun, a prominent Chinese tech entrepreneur and founder of the TRON blockchain, is investing an additional $45m in World Liberty Financial (WLF), a decentralized finance venture backed by Donald Trump and his sons, bringing his total investment to $75m. In January 2025, President-elect Donald Trump introduced a cryptocurrency meme coin named $Trump on the Solana blockchain, quickly surging to a market capitalization of about $7.7bn. The Trump family retains ownership of 80% of the $Trump tokens through CIC Digital LLC and Fight Fight Fight LLC, with plans to release the remaining tokens over the next three years. Justin Sun is under investigation by the SEC in the US and faces a range of lawsuits.

This unusual partnership has attracted significant attention, especially as Trump has assumed the presidency, raising questions about the intersection of digital finance, regulatory oversight, and political interests.

Could the Trump administration’s “America First 2.0” rhetoric heighten the scrutiny of offshore crypto investors? Or does Sun’s involvement signal a shift to Trump’s approach to foreign capital? These discussions not only underscore the far-reaching implications of a new Trump term, but also lay the groundwork for deeper discussions on trade, technology restrictions, and the future of US-China relations.

Lessons from the previous Trump administration point to a direction that mirrors his first term – sharper trade tensions with China, broad-based tariffs, and an “America First” approach

America First 2.0?

Trump’s recent inauguration address and first wave of executive orders have revealed a second-term agenda that reprises familiar protectionist policies. They largely echo the priorities of his first term, including tax cuts, energy dominance, and an America-first approach. Interestingly, Trump 2.0 appears to have taken a cordial stance by inviting China’s Vice President to the inauguration and refraining from overtly naming China. Even so, tariff policies towards China are expected to surface soon, despite not being explicitly mentioned in his speech. This combination of cordiality and looming protectionist measures indicates a complex dynamic that will likely define US-China relations in the next four years.

At the same time, lessons from the previous Trump administration point to a direction that mirrors his first term – sharper trade tensions with China, broad-based tariffs, and an “America First” approach. However, the world today is drastically different from 2016. China’s economy has evolved, leaning more towards self-reliance, domestic consumption, and diversification of global partnerships, which positions it to adapt more effectively to forthcoming policy headwinds.

A hallmark of US strategy has been leveraging alliances to constrain China's growth in critical areas.

What is likely to remain unchanged in US policy on China?

China was explicitly labeled a “strategic competitor” under Trump’s first administration, while the Biden administration refined this to portray China as a potential long-term challenger.

Rooted in this framework, the Trump and Biden administrations have both leveraged certain measures, tariffs, sanctions, and export restrictions as key tools to curtail China’s advancements in high-tech sectors and global markets. At the same time, a hallmark of US strategy has been leveraging alliances to constrain China’s growth in critical areas. For example, the US has pressured countries like the Netherlands and Japan to limit exports of advanced semiconductor equipment and technology to China, aiming to diminish its competitive edge in high-tech industries.

During Trump's first term, the share of US imports from China declined significantly, while imports from countries like Vietnam surged

Lessons from Trump’s first term and potential game-changers ahead

Lesson #1: The trade war and its ripple effects

During Trump’s first term, the US-China trade war marked a turning point in bilateral economic relations. Beginning in 2018, the Trump administration imposed high tariffs on Chinese goods, citing “unfair trade practices” and “forced technology transfers.” Tariffs were levied on $550bn worth of Chinese exports, targeting critical sectors such as electronics, semiconductors, and solar panels.

The impact was immediate and multifaceted. The share of US imports from China declined significantly, while imports from countries like Vietnam surged. This shift prompted many Chinese manufacturers to strategically relocate operations to Southeast Asia, leveraging geographical advantages, lower labor costs, and tariff benefits. Vietnam in particular became a favored destination, allowing Chinese firms to bypass the direct tariff barriers on exports to the US.

Transformation #1: Accelerated domestic consumption and market diversification

With the specter of new tariffs hovering, the prospect of a renewed trade war looms large. Many of China’s export-oriented industries – electronics, machinery, textiles, toys, and home appliances – stand at the frontline and are expected to feel immediate pressure from higher US import duties.

For China, this could mean:

1. Accelerated domestic demand. China has been shifting towards a more consumption-driven economy in the past decade, reducing reliance on exports and infrastructure-led growth. Measures such as easing travel visa policies for foreign visitors to China and boosting domestic tourism and consumption are already a part of this structural shift. In the short term, the Chinese government could roll out fiscal incentives to stimulate domestic demand and local spending while simultaneously implementing measures to increase the proportion of high-value industries in the long term, to strengthen the transition from a production-driven economy to a consumption-oriented one.

2. Increased diversification of global markets. Anticipating tariffs from the US, Chinese firms have started strengthening trade ties with other regions such as Southeast Asia, Africa, and parts of Europe. This not only mitigates overexposure to US demand but also enables companies to tap into emerging consumer bases to hedge against ongoing geopolitical uncertainties. In the long term, China’s manufacturing sector remains globally competitive and highly efficient. Should the US impose excessively high tariffs, it would face challenges in replacing China’s supply chain capacity in the short term, as few nations can match China’s scale and efficiency.

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The use of the "Entity List" became a key instrument in targeting Chinese tech firms, especially in semiconductors.

Lesson #2: Technology restrictions and the semiconductor industry

Between 2016 and 2020, restrictions on China’s access to technology intensified, aiming to curtail its competitiveness in global tech. The Committee on Foreign Investment in the United States (CFIUS) tightened its scrutiny of Chinese investments and acquisitions, rejecting at least nine deals during Trump’s term, including three in the semiconductor sector. Additionally, the Foreign Investment Risk Review Modernization Act of 2018 expanded CFIUS’s authority, and the Export Control Reform Act of 2018 further restricted the outflow of US core technologies.

The use of the “Entity List” became a key instrument in targeting Chinese tech firms, especially in semiconductors. Over 1,300 Chinese entities were blacklisted, limiting their access to critical US technology and disrupting supply chains.

However, these policies also accelerated China’s push for self-reliance in semiconductors. From 2019 onward, China’s import-to-export ratio for integrated circuits began to decline, while the export unit price steadily increased, narrowing the gap with imports. This trend underscores China’s strategic focus on reducing dependency on foreign semiconductors and strengthening its domestic industry.

Transformation #2: Innovation and increased technological self-reliance

Trump’s restrictive measures on exports, expansion of entity lists, and investment restrictions heavily impacted China’s semiconductor and high-technology fields and continued under the Biden administration. These measures could potentially intensify under Trump 2.0, resulting in stricter restrictions and sanctions on Chinese high-tech firms, especially in sectors such as semiconductors, AI, 5G, and advanced chips. Despite these challenges, China has achieved notable progress in technological self-reliance, with significant improvements in mature semiconductor production capacities and domestic breakthroughs in high-performance chips by companies like Huawei.

Key battlegrounds:

1. The race for artificial intelligence. The rise of generative AI has further intensified the US-China rivalry. Stricter US sanctions could limit Chinese access to advanced AI algorithms, cloud-based services, and high-end chips. Yet these constraints have historically spurred China’s own AI ecosystem to accelerate R&D and product commercialization.

2. Semiconductor self-reliance. China has made substantial progress in mature semiconductor processes and, more recently, in advanced chips, driven by internal demand and pressure to reduce reliance on foreign suppliers.

However, China’s commitment to achieving self-sufficiency in high-tech industries remains resolute. While short-term restrictions may pose significant hurdles, they also serve as catalysts for increased domestic investment and innovation. Historical evidence suggests that such constraints are often temporary roadblocks, with long-term progress driven by sustained efforts in research and development.

Many Chinese solar and battery producers deepened their focus on domestic adoption, which aligned with Beijing’s broader objectives to reduce pollution, champion emerging tech sectors, and cultivate a strong domestic market for renewable energy

Lesson #3: Energy policies and the future of New Energy Vehicles (NEVs)

The first Trump administration championed fossil fuels and eased regulatory burdens on coal, oil, and gas. The US also announced its withdrawal from the 2015 Paris Agreement in 2017 which it completed in 2020, signaling a skeptical stance on multilateral climate commitments. Additionally, 30% tariffs were imposed on imported solar panels in 2018, which affected global solar supply chains, particularly those from China. These tariffs, coupled with reduced federal support for renewables, increased the cost of utility-scale solar developments and slowed the expansion of clean energy projects in the US.

But where the US pulled back, China marched ahead. By 2018, China increased investment in renewables by 30% between 2016 and 2017, accounting for 45% of the global total, while investment by the US and Europe declined. At the same time, many Chinese solar and battery producers deepened their focus on domestic adoption, which aligned with Beijing’s broader objectives to reduce pollution, champion emerging tech sectors, and cultivate a strong domestic market for renewable energy.

Transformation #3: Clean energy repositioning and global opportunities

Trump’s stance on energy policy diverges sharply from Biden’s. While Biden championed renewable energy, Trump favors traditional energy development. As a leader in solar power and NEVs, China may face higher tariffs on its renewable energy products under a Trump administration. These tariffs could reduce the competitiveness and profitability of Chinese manufacturers, while potential subsidy cuts in the US could dampen domestic demand for NEV products.

According to 2023 trade data, US imports of Chinese solar panels and NEVs remain relatively low, but lithium battery imports are more significant. For major Chinese NEV players like CATL, decisions regarding US market entry and local production will hinge on the extent of potential investment restrictions imposed by the Trump administration. Given Trump’s “America First” policy, these investments may face substantial hurdles, limiting opportunities for Chinese companies.

China’s ability to balance domestic reforms with international partnerships will be key to mitigating similar challenges that may arise under potential Trump 2.0 policies.

Looking ahead: Navigating a complex future

Trump’s first term clearly demonstrated how external pressure can fuel domestic resilience and adaptability. While the four years ahead may see a reprise of aggressive measures, they are within a very different global environment and a new context where China’s pivot toward self-reliance in strategic industries, consumption-driven growth, deepened multilateral cooperation, and targeted internal structural transformation is well underway.

Looking ahead, China’s ability to balance domestic reforms with international partnerships will be key to mitigating similar challenges that may arise under potential Trump 2.0 policies. Ultimately, these constraints may once again catalyze China’s ongoing transformation that has so far been defined by deeper multilateral ties, advanced homegrown technologies, and a rising generation poised to shape the nation’s next stage of growth. For businesses and policymakers, understanding these dynamics is essential to adapting strategies in an increasingly complex geopolitical landscape.

Authors

Mark Greeven

Mark J. Greeven

Professor of Innovation and Strategy at IMD and Chief Executive of IMD China

Mark Greeven is Professor of Management Innovation and Strategy, and Dean of Asia. At IMD he co-directs the Building Digital Ecosystems program, the Strategy for Future Readiness program, and is responsible for the school’s activities and outreach across China. Greeven is a founding member of the Business Ecosystem Alliance. Drawing on two decades of experience in research, teaching, and consulting in China, Greeven explores how to organize innovation in a turbulent world. He is ranked on the 2023 Thinkers50 list of global management thinkers.

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