As U.S. President Donald Trump prepares to visit Beijing on May 14-15, 2026, for a highly anticipated summit with President Xi Jinping, the world is watching to see if the two leaders can stabilize a U.S.-China relationship strained by disputes over trade, technological race, the future of Taiwan, and the rippling effects of the conflict with Iran.

Trump’s trip to Beijing – already rescheduled once due to the conflict in the Middle East – has been described as having tremendous symbolic significance. Yet, expectations for a breakthrough on specific deliverables should remain low, according to Susan Thornton, a China expert and former U.S. diplomat. Thornton joined APARC Director Kiyoteru Tsutsui on the latest episode of the APARC Briefing video series to analyze the potential outcomes of the Trump-Xi summit and the high-stakes dynamics shaping U.S.-China relations.
 

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Trade and Tech: A Call for a Paradigm Shift

On the economic front, Thornton drew on her deep experience in trade negotiations to critique the lack of focus in U.S. policy.

"The biggest problem for U.S. negotiators is deciding what it is that we want from China," she said. "We tend to give them a long list of revolving priorities, which [makes it easy for the] other side of the negotiating table to just fob them off and not actually commit to anything over years of negotiations.”

On the technology rivalry between the two powers, Thornton urged a shift in strategy. Rather than pursuing sweeping export controls that are often unilateral and incomplete, she advocated for a narrower, multilateral approach focused on the most sensitive technologies, combined with a greater emphasis on American innovation. AI governance is one of the areas Thornton believes could be a common ground for Washington and Beijing to align their policies.

“It's going to be very hard for the United States to contain China's technological ambitions and growth,” she said. “I don't think that we're exactly competing on the same metrics. I question how it is that we're going to be able to keep China from getting technologies that are dual-use but might be useful in some military application when these things are basically economy-wide products.”

When it comes to technological competition, "We need to try to run faster than China, not be constantly trying to trip China up and looking in the rearview mirror," Thornton urged. "I don't think that's going to bode well for the long-term development of the U.S. tech sector."

The Taiwan Flashpoint: A Longer-Term Challenge

While Taiwan remains the most dangerous flashpoint that could trigger a kinetic warfare between the United States and China, Thornton believes that the immediate risk of conflict has receded, in accordance with recent U.S. threat assessments that no longer see 2027 as a likely target date for a potential Chinese takeover of the island.

Beijing, she argued, is closely watching the domestic political situation in Taiwan and how the leadership in Taipei views U.S. reliability and support. “I think the Chinese have determined, based on both of those things they've been watching, that they can afford to wait a bit longer, see what happens.”

Thornton cautioned, however, that, even as a conflict over Taiwan may no longer pose an immediate-term threat, “it is a problem that is going to develop over the coming decade.”

Diplomacy in a Multipolar World Order 

When asked about the future of the global order, Thornton described a trend toward fragmentation. If the United States steps back from its global leadership role, it is difficult to see who else would be willing or able to shoulder the cost of providing global public goods, she said. A “thinner world order,” with the United Nations at its center, may eventually find favor with countries that can afford to pay for some of those goods, she reflected.

In a closing advice for aspiring foreign service officers, Thornton argued that the emergence of a multipolar world reinforces the need for skilled diplomacy. “As the global order changes and more countries come into the mix of the councils of politics in the world, the United States will have to lean back toward diplomacy more,” she predicted.

“We're going to need very good diplomats,” she concluded, because it will be significantly harder to be an American diplomat in a fragmented world order in which the United States is no longer the single overwhelmingly dominant power.

David Meale, former U.S. diplomat and current consultant, offered a cautiously optimistic perspective on U.S.-China relations at an APARC China Program seminar, arguing that despite significant tensions, there remains substantial room for what he calls “managed rivalry”—a relationship that is neither warm nor easy, but constructive enough for both countries to serve their populations and address global challenges. Drawing on his 33 years in the U.S. Foreign Service, he traced the evolution of U.S.-China relations over the past three decades and assessed current trajectories, bringing both diplomatic experience and fresh insights from private sector concerns to his analysis.

Three Decades of Evolving Relations
 

His entry into China-focused diplomacy came in 1995 when he was assigned to Hong Kong during the handover. During that era and through the early 2000s, U.S. policy operated under the assumption that China would gradually embrace the post-war rules-based international order shaped largely by the United States. The thinking was that China would develop a self-interest in preserving this order, becoming a constructive, if not easy, partner. This belief undergirded the strong U.S. effort to bring China into the World Trade Organization in 2001.

During his service as an Economic Officer in Taiwan in the 2000s, Meale witnessed the merging of talent from Asia and the United States that built China’s electronics manufacturing industry. Five percent of Taiwan’s workforce had moved to the mainland; there were even Shanghainese dialect programs on Taiwanese television at night for those dreaming of seeking their fortunes through cross-strait opportunities. Although there was tension with the Chen Shui-bian administration, there was a surprising amount of positivity in Taiwan about the mainland. That, of course, has now changed.

The Obama administration continued to work within the framework of bringing China into the existing international order, even as concerns grew. The approach aimed to convince China to preserve and, if necessary, shape this order, while using it to constrain China when necessary, as demonstrated by the attempt to resolve the South China Sea dispute involving the Philippines through the United Nations Convention on the Law of the Sea (UNCLOS).

The Trump administration marked a decisive shift. Meale noted that Trump openly discarded the goal of integrating China into the existing order, instead pursuing aggressive trade policies, technology restrictions, and explicit framing of China as a threat. The Chinese hoped the Biden administration would turn this around, but it instead maintained this posture, pursuing an “invest, align, compete” strategy—investing in the United States, aligning with allies, and defining the relationship as a competition.

Trump 2.0 brought “Liberation Day,” which Meale sees as the belief that the U.S. place in the world needs to be corrected; the United States is economically overextended, the trade imbalances and the associated debt cannot continue, and the supply chain vulnerability from COVID must be addressed. Tariffs were ratcheted up, and both sides imposed export controls. 

The Chinese hit back hard; Chinese officials are very proud of China’s pushback against an unchecked Trump. China’s economic growth is forecast at 5 percent this year, and the feeling from China is that it has shown the world the United States cannot push it around.

Looking ahead to 2026, Meale is optimistic. There will undoubtedly be crises that pop up: the Chinese will overreach on rare earth elements, and the United States will take an economic action that the Chinese did not plan on. Meale sees this as the “sine curve” of the U.S.-China relationship. There’s a crisis, tensions rise, there’s a response, and things eventually cool down. The curve goes up and down, but very little gets resolved.

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China's Current Challenges
 

China, Meale noted, effectively contains two economies: one serving approximately 400 million people who are producing world-class products with perhaps the world's best industrial ecosystem and impressive infrastructure, and another economy serving the rest of China's population, which has improved significantly over recent decades but relies heavily on informal work and the gig economy.
China faces deep structural problems, including a property sector crisis that has destroyed significant household wealth, an economy structured excessively around investment rather than consumption, youth unemployment reflecting a mismatch between graduating students and available jobs, and "involution" (neijuan, 内卷)—a race to the bottom in sectors where government incentives have driven overcapacity. China's reliance on export-led growth comes at a time when its overcapacity is increasingly unwelcome not just in developed countries but across the global South.

These challenges, Meale argues, will not result in a financial crisis or recession, but rather chronic headaches that will affect its foreign relations. Growth will continue, albeit at a slower pace, and the country will have significant work ahead to address inequality and structural imbalances.

On the question of Taiwan, Meale pushed back against predictions of imminent Chinese military action, particularly speculation about 2027 as a critical year tied to the 100th anniversary of the People's Liberation Army. He argued that, right now, one of China’s top goals is to avoid being drawn into a Taiwan conflict. China has recently purged nine senior military officials and is dealing with serious problems in its military. Five years from now, however, the situation could look quite different.

Defining End States and Finding Common Ground
 

Meale concluded by outlining what he believes each side seeks as an end state, arguing that these visions, while different, are not irreconcilable. Rather than global domination, he argued China seeks a world that works for what it calls "grand rejuvenation." This means overcoming the century of humiliation, reunifying with Taiwan, and living safely and securely on its own terms. China wants recognition as a global power, dominance in its near seas, freedom from technology containment, elimination of shipping chokepoints, access to markets, and the ability to pursue relationships with ideologically aligned countries.

The United States, meanwhile, accepts that competition with China is permanent but seeks a predictable China. U.S. goals include protecting advanced technology where it has an advantage, avoiding supply chain vulnerabilities, shaping Beijing's choices without attempting to control them, maintaining the Taiwan status quo until it evolves in a mutually and naturally agreed way, and ensuring fair trade to address what it sees as a stacked deck in current trade relationships. The United States also wants to prevent China from enabling adversaries, as seen in Chinese firms rebuilding Russia's military-industrial complex while maintaining nominal neutrality on Ukraine.

These end states, Meale acknowledged, collide in many ways but not in absolute ways. He sees substantial room for leader-driven, managed rivalry that can function constructively. This rivalry will not be easy or warm, but it can allow both countries to serve their populations while cooperating where global interests align.
 

Key Takeaways  
 

• The “integrated China” assumption is over. U.S. policy no longer aims to bring China into the existing international order, marking a fundamental shift from decades of engagement strategy.
• China's economy faces structural challenges, not a crisis. China will continue to grow, but must address inequality, overcapacity, and wealth destruction from the property crisis.
• Taiwan timing matters more to Beijing than deadlines. China seeks to control when and how the Taiwan issue is resolved, preferring not to be forced into premature action.
• Managed rivalry is possible. Despite significant tensions and incompatible elements of each side's goals, there remains space for constructive competition. While the relationship between the world's two largest economies will stay competitive and often contentious, it need not become catastrophic.
   

At a seminar hosted by APARC’s Taiwan Program, National Chengchi University’s Hsiao-Hui Lee, a professor of management information systems, dissected how global trade shocks propagate not only through trade flows of physical goods but also through financial flows, particularly trade credit, within supply chain networks. Against the backdrop of shifting U.S. trade policies and geopolitical upheavals, Lee's research offers insights for policymakers and businesses navigating the complex landscape of global trade and supply chain resilience. Through a Taiwan lens, her analysis underscores the importance of managing not just the logistical but also the financial linkages of global supply chain networks.

Global trade is interconnected through global supply chains via direct and indirect trade. Geopolitical events, natural disasters, and unexpected shocks disrupt these connections, creating ripple effects across global supply chain networks. Events ranging from the 2008 financial crisis to the 2011 East Japan earthquake and tsunami, the COVID-19 pandemic, and, more recently, U.S.-China trade tensions, the Russia-Ukraine war, and the Trump administration’s executive orders all accentuated vulnerabilities within these interconnected frameworks.

Lee’s main point is that shocks in an industry or a region can propagate across supply chains not only through transactions but also via the movement of trade credit, which allows firms to buy inventory and delay payments. For suppliers, this mechanism provides a financial buffer that helps maintain liquidity and manage cash flows. Indeed, trade finance supports 80 to 90 percent of global trade, according to the World Trade Organization.

Yet, trade credit comes with its own set of risks that may amplify financial stress across supply chain networks and propagate shocks. And if one firm defaults, then the impact can cascade through the supply chain, affecting multiple sectors. Trade creditors experience substantial losses when debtors fail, and these losses can increase the bankruptcy risk for suppliers, demonstrating how financial stress can spread through trade credit links. For example, during the 2008 financial crisis, a significant contraction in trade finance availability led to a 12% decline in international trade. This shortage of financing disrupted global supply chains, causing widespread economic contraction. 

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Political leaders aiming to secure supply chains have touted risk-mitigating strategies such as reshoring (repatriating raw material production and manufacturing), nearshoring (moving far-flung sourcing points to closer countries and regions), and friendshoring (relocating supply chains to allied countries where the risk of disruption from political chaos is low). Each strategy offers unique potential benefits, like reduced transportation costs or enhanced political stability. For instance, the U.S. CHIPS Act aims to bolster domestic semiconductor manufacturing, while the United States-Mexico-Canada Agreement (USMCA) helped facilitate duty-free access to U.S. markets.

Lee’s research, however, is a cautionary examination of the trade credit interdependence inherent in these common outsourcing strategies and their influence on shock propagation. She argues that, while relocating production closer to home or to friendly nations is beneficial, the politics of relocation often overlook the financial linkage risks introduced by extensive trade credit networks. Taiwan’s manufacturing ecosystem – concentrated around semiconductors, electronics, and precision components – is particularly illustrative of this complexity, with high levels of inter-firm trade credit amplifying liquidity stresses during trade shocks.

Using empirical models, Lee’s analysis shows that in-country shock propagation tends to be stronger than cross-border transmission. Yet, the intricate web of cross-border trade credits means that even with reshoring or nearshoring strategies, Taiwanese suppliers, for example, remain financially interlinked with foreign customers, like Apple and Nvidia. Therefore, demand shocks in one region may still create repercussions in Taiwan's local cash flow chains.

Lee suggests that implementing robust risk management practices – such as credit insurance, diversification of credit sources, and realignment of supply chains – can help mitigate these risks.
 

Key Takeaways: Global Trade and Credit-Driven Co-Movement

For Global Stakeholders:
 

1. The Importance of Credit Chain Interdependence: Trade credit chain linkage risks can propagate global trade shocks.
2. Pros and Cons of Outsourcing Strategies: While reshoring, nearshoring, and friendshoring have clear benefits, each also presents unique challenges and risks, particularly due to trade-credit interdependencies.
3. Complexity in Trade-Credit Networks: Extensive trade credit links represent an often-overlooked risk in corporate relocation decisions.
4. Supply Chain Resilience Strategies: Supply chain resilience requires managing not only logistics but also financing networks.

For Taiwan:
 

1. Taiwan’s Manufacturing Ecosystem Dynamics: The island nation’s manufacturing sectors heavily depend on inter-firm trade credit networks, which can amplify liquidity stresses during shocks.
2. Financial Ties Remain Despite Reshoring Efforts: Even with U.S. reshoring or nearshoring efforts, Taiwanese suppliers remain financially tied to foreign customers, making them susceptible to demand shocks abroad.
3. Financial Flexibility for Stability: Firms such as TSMC, Hon Hai, and Delta Electronics leverage factoring and receivables sales to stabilize working capital, indicating that financial flexibility is key to resilience.
4. Enhancing Economic Fortitude: Expanding supply-chain finance platforms and trade-credit insurance could boost Taiwan’s resilience amid export bans or geopolitical disruptions.

This post, first published by the Harvard Law School Forum on Corporate Governance, is based on the co-authors' recent European Corporate Governance Institute - Law Working Paper No. 872/2025.

Introduction

Conventional accounts of the rivalry among global stock exchanges emphasize regulatory competition to attract initial public offerings (IPOs). This framing – often cast as a “race to the bottom” – suggests that exchanges compete primarily by lowering governance and disclosure standards to secure marquee listings. In a new paper, we argue that this view is both incomplete and outdated. By examining stock exchanges through the broader lens of political economy, we demonstrate that IPO competition represents only a fraction of the forces shaping today’s capital markets. Exchanges have become strategic assets at the intersection of commercial imperatives, national economic goals, and geopolitical rivalry.

Our analysis makes two central contributions. First, we show that the importance of IPO competition to exchanges, and the regulatory arbitrage thought to propel it, is often overstated. While competition, particularly between New York and non-US exchanges, can be fierce, IPOs generate only marginal revenues for exchanges in comparison to revenues from data and analytics, and private capital is an increasingly important alternative source of finance. Second, we bring nation states into the picture. Governments are active participants in global stock exchange competition, with strong economic, policy, and geopolitical stakes in the health of their domestic or regional exchanges. We highlight how exchanges increasingly function as mechanisms of policy transmission, instruments of financial sovereignty, and geopolitical screening devices – sometimes at the expense of their economic functions.
 

The Shein Listing Saga as a Microcosm

The recent saga of fast-fashion retailer Shein illustrates the new dynamics. After confidentially filing for a New York listing in 2023, Shein encountered pushback from U.S. lawmakers over alleged use of forced labor in its supply chain. It then turned to the London Stock Exchange, which was eager to obtain a high-profile listing despite the allegations, only to face heightened scrutiny from U.K. advocacy groups. Ultimately, Beijing itself blocked the company’s foreign listing, possibly fearing the enhanced scrutiny it would entail, forcing Shein to pursue a Hong Kong listing instead.

This episode highlights several themes we explore in the paper: the enduring prestige of high-profile IPOs and the willingness of regulators to adjust standards to obtain them; and, crucially, the role of governments in shaping access to capital markets in light of geopolitical tensions and policies unrelated to investor protection.
 

Limits of IPO Competition

Stock exchanges have long competed for listings, including by lowering listing or governance standards, but this rivalry is subject to important limitations and caveats:

1. Demutualization and Profit Motives: Most exchanges have demutualized and now operate as profit-oriented shareholder-owned corporations. Listing fees today account for only a small fraction of exchange revenues. For example, listing fees on the London Stock Exchange account for just 3% of its parent company’s income; for the NYSE, the figure is around 10%.
    
2. Regulatory Competition and Governance Standards: Exchanges have historically relaxed rules to secure listings. The London Stock Exchange diluted its rules on related-party transactions in an unsuccessful attempt to attract Saudi Aramco. London, Hong Kong, and Singapore revised their listing rules to allow multiple-voting shares to compete with U.S. exchanges. While these episodes raise familiar race to the top/bottom questions, the importance of regulatory arbitrage in the global capital markets today can be overstated, in part for reasons explained in points 3 and 4 below.
    
3. Economic Motivations Beyond Regulation: Many firms choose the NYSE or Nasdaq not principally for regulatory reasons but for liquidity, visibility, and greater opportunities in areas such as M&A in the huge U.S. market. To name a few recent examples, Flutter Entertainment, CRH, Wise, Spotify, and Arm all explained that they listed in New York for these reasons.
    
4. Competition from Private Capital: Perhaps the most important caveat is that exchanges increasingly compete less with one another than with private markets. Assets under management in private equity, venture capital, and private credit have ballooned from $9.7 trillion in 2012 to over $24 trillion by 2023. Firms avoid public markets to sidestep disclosure burdens, compliance costs, and shareholder activism. Since 2022, take-private deals have outpaced IPOs more than threefold.
    

Taken together, these trends suggest that the long-running narrative on regulatory competition for IPOs misses major contemporary market dynamics.
 

States as Stakeholders

If capital is global, why should governments be deeply invested in the fate of their domestic exchanges? We identify three reasons.

1. Direct and Indirect Economic Benefits: Domestic exchanges generate tax revenues, create jobs, and facilitate capital formation. They provide a platform for small and medium-sized enterprises less likely to seek foreign listings, thereby stimulating domestic firm growth and innovation.
    
2. Preventing Corporate Exodus: Policymakers fear that firms listing abroad may eventually relocate headquarters, talent, and tax bases overseas. European reports, for example, have warned of a “technology drain” as innovative firms list on U.S. markets. Domestic exchanges thus serve as anchors against corporate flight.
    
3. Home Bias: Evidence shows that investors retain a preference for domestically listed companies. Governments reinforce this tendency by encouraging pension funds and other institutional investors to allocate assets domestically.
    

Exchanges as Geopolitical Instruments

Perhaps the most profound shift lies in the politicization of public capital markets. Exchanges now function not simply as neutral financing infrastructure but as levers of economic statecraft and policy transmission. Some examples:

1. United States–China Rivalry: The Holding Foreign Companies Accountable Act, Ant Group’s aborted IPO, Didi’s delisting from the NYSE, and heightened scrutiny of Chinese firms on U.S. markets illustrate how capital markets are enmeshed in national security, data security, and geopolitical concerns.
    
2. Europe: The EU’s Capital Markets Union, recently reframed as the “Savings and Investment Union,” is now explicitly tied to European economic sovereignty and geopolitical positioning. Separately, ESG regulations such as the CSRD and the Supply Chain Directive extend Europe’s normative agenda globally by imposing climate and human rights obligations on listed firms.
    
3. Other Jurisdictions increasingly view exchanges as state assets. For example, Singapore has called relisting on the SGX a “national duty.” India frames domestic listings under the banner of self-reliance. Israel highlights its stock exchange as a force for resilience in wartime. Japan has used the TSE as a tool to implement corporate governance reforms.
    

In short, capital market policies and listing decisions now intersect with areas of government interest well beyond economics, including national security, human rights, financial sovereignty, and industrial policy. But efforts to harness exchanges for strategic ends risks fragmenting global markets and undermining their economic role.
 

Conclusion

Global stock exchanges today operate in a transformed environment. They remain commercial enterprises competing for listings, but they are also strategic assets deeply embedded in state policy and geopolitical rivalry. High-profile IPO competition, though still active, is only part of the story. As private capital expands and governments assert new forms of control, exchanges have been repurposed as instruments of financial sovereignty and normative policy enforcement.

About the Authors

Curtis J. Milhaupt is the William F. Baxter – Visa International Professor of Law at Stanford Law School, Senior Fellow, by courtesy, at the Freeman Spogli Institute for International Studies at Stanford University, and Fellow at the European Corporate Governance Institute. Wolf-Georg Ringe is Professor of Law and Finance at the University of Hamburg, Visiting Professor at the University of Oxford, and Research Member at the European Corporate Governance Institute.

As the global geopolitical landscape shifts and the United States redefines its role on the world stage, Japan, its closest ally in the Asia-Pacific, faces mounting expectations and emerging opportunities. In recognition of this critical juncture, APARC’s Japan Program and the United States-Japan Foundation convened a timely symposium at Stanford University, Recalibrating U.S.-Japan Collaboration in a Time of Tumult. The event brought together scholars, policymakers, and practitioners to explore how U.S.-Japan relations are adapting to new global realities. Over the course of five thematic sessions, participants engaged in a dialogue that spanned foreign policy, international trade, social governance, civil society, and even the cultural diplomacy of baseball.

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The opening session, “Global Democracy, Foreign Aid, and Regional Security: As the U.S. Pulls Back, Will Tokyo Step Up?,” featured Larry Diamond, Mosbacher Senior Fellow of Global Democracy at Stanford’s Freeman Spogli Institute, Shinichi Kitaoka, former Japanese ambassador to the United Nations and past president of the Japan International Cooperation Agency (JICA), along with APARC Japan Program Director Kiyoteru Tsutsui. Together, they examined Japan’s potential to assume a greater leadership role in defending democratic norms and providing regional public goods in an era of American retrenchment. The discussion underscored both Japan’s growing capacity and its constitutional and cultural constraints.

In the second session, “How Tariffs and Trade Wars are Reshaping the Indo-Pacific,” Wendy Cutler of the Asia Society Policy Institute and Peter Wonacott of the Stanford Doerr School of Sustainability reflected on the disruptions facing global trade. Drawing on their experience in economic policy and journalism, respectively, they traced how protectionist policies and decoupling strategies are altering regional supply chains. Their analysis emphasized the importance of maintaining open trade flows while also reinforcing economic resilience across the Indo-Pacific.

The third session, “The Future of DEI, ESG, SDGs: Will Japan Follow the U.S. or Stay the Course?,” focused on evolving norms around corporate and social governance. Keiko Tashiro, deputy president at Daiwa Securities Group, joined Gayle Peterson of Oxford’s Saïd Business School and Stanford sociologist Patricia Bromley to evaluate whether Japan’s institutions will align with American trends or continue along a distinct trajectory. Panelists discussed Japan’s historically unique approach to equity and sustainability, noting the domestic implementation of global frameworks such as the UN-sanctioned Sustainable Development Goals.

The fourth session, “Redefining the Relationship Through Civil Society: Burden Sharing, Knowledge Sharing, Picking up the Slack,” included remarks from Mike Berkowitz of the Democracy Funders Network, Laura Deal Lacey of the Milken Institute, and Jacob M. Schlesinger, president and CEO of the United States-Japan Foundation, who explored how non-state actors are increasingly stepping in to fill voids left by governments. The conversation highlighted the growing role of philanthropic networks and think tanks in shaping bilateral cooperation, particularly in areas such as disaster response, democratic resilience, and public diplomacy.

Capping the day’s proceedings was the session titled “Diamond Diplomacy Redux: Baseball as a Bilateral Bridge.” Featuring Stan Kasten, president and CEO of the Los Angeles Dodgers, and Yuriko Gamo Romer, director of the documentary “Diamond Diplomacy,” the discussion viewed U.S.-Japan relations from a cultural diplomacy perspective. The two reflected on the enduring symbolism of baseball in forging people-to-people ties, illustrating how shared pastimes can foster mutual understanding even amid geopolitical uncertainty.

The symposium served as a vital platform for reassessing the U.S.-Japan alliance in a period marked by shifting global norms. As the international system undergoes profound change, the panelists indicated that the robust partnerships must evolve not only through diplomacy and defense but also across the realms of trade, governance, civil society, and cultural exchange.

This interview first appeared in the Brazilian newspaper Folha de S.Paolo, on April 6. The following English version was generated using machine translation and subsequently edited for accuracy and clarity.

WASHINGTON — The tariff hike against all countries announced last week by President Donald Trump may bolster China's image, but that doesn't mean China or any other country is poised to replace the United States, says Thomas Fingar, Shorenstein APARC Fellow at the Freeman Spogli Institute at Stanford University.

Fingar, a former chief of the State Department's China Division, among other roles in the U.S. Foreign Service and national intelligence, believes that Trump's tariffs will be bad for all nations.

"I hesitate to predict how other countries will react, except that this has more or less given everyone an incentive to bypass the U.S.," he tells Folha.

Donald Trump announced tariffs this week against virtually every country. China has already announced retaliation, imposing a 34% tariff on American products. Are we facing a trade war?

I don't think the war metaphor works for me. I don't know what Trump is trying to do. One could say that this is a game of imposing an outrageous tariff in the hope that specific targets, which are basically all countries, might give in to what they say are their demands. In doing so, they would reduce barriers to trade with the United States. To me, it doesn't make sense with the vast majority of targets of the 10% tariffs.

Why?

I hesitate to predict how other countries will react, except that this has more or less given everyone an incentive to bypass the U.S., to make the U.S. a supplier of last resort, to hold the line, to have a kind of united front to compete with each other.

If the assessment is that the Dutch or the French or the Germans or the Brazilians or somebody else is talking about doing something to eliminate a 10% tariff to gain a comparative advantage in accessing the U.S. market, if that's the logic, then fine. Maybe there's something rational about that, but I think it's more likely that the targets of those low tariffs are just getting together.

My main trade competitor has the same or higher tariffs levied against them. Why should I give in if we are competing on a level playing field?

I think Trump is going to make the U.S. pay a huge geopolitical price. But what he thinks he will gain from this, I don't know. Is it likely that he will achieve anything really significant from it? I doubt it.

You mentioned a geopolitical price tag for the United States. What would it be?

The tendency of much of the world, most of the time, was to try to work with the United States, to the extent that they couldn't automatically do what Washington wanted, but they were inclined to cooperate because they saw it as benign, if not beneficial, to their interests. I think Trump has reversed that. This is going to lead to a disinclination to work with us, an incentive to try to bypass us. I think the inclination now is going to be: I'm not going to vote with the Americans, I'm going to look elsewhere first, for my investment, for my capital, for the market, for what I'm doing, for partners.

But I don't think that these measures are necessarily going to play in favor of any particular country. Maybe China in some places, the European Union in some places, Japan in some places. It's going to be a very different environment for the United States, for American companies and diplomats to operate in. It's going to be much more difficult.

This tariff strategy that you say is hard to understand is seen by some analysts as part of Trump's isolationist policy.

As my kids would say, this is so last century. This is really 19th century, the idea of bringing industries, manufacturing back to the United States. Very little manufacturing, I think, is going to come back to the United States. We have 4% unemployment. We can't fill the jobs that we have now, imagine bringing back manufacturing of basic commodities like shoes, toys, that kind of thing.

That left the United States a long time ago and went to Japan, moved from Japan to Taiwan, moved from Taiwan to South Korea, moved from South Korea to somewhere else, and then moved to China and then to Vietnam. Those things are not coming back here because there's not enough profitability to justify investing in robots and mechanizing those things to bring them back to the United States. Our workforce is small relative to the size of the economy. It's not coming back.

It's already moving from China because labor costs are so high. The fallacy in Trump's logic is that things like furniture, construction, textiles, clothing, and manufacturing would come back. And the people who would actually do the work are the people he's persecuting with his ridiculous immigration policies.

Trump has argued that he imposed the tariffs to curb alleged abuses against the United States that would benefit China. Is he containing Beijing with this move?

I don't think he really cares about containing China. But the answer is no. These moves boost China's image. Beijing has seized on the rhetoric of defending the open, globalized international trading order that the United States has attacked. They will take advantage of that as much as they can. I don't think the tariffs are part of the U.S. rivalry with China. China's rise has not disadvantaged the United States economically — it has done so to Japan, and, to some extent, South Korea and Taiwan, but not the United States. So Trump is using this argument with false, exaggerated, and distorted statements.

Could we witness a change in the world order, the end of the American era and the beginning of a Chinese era?

No.

Not even as a consequence of tariffs?

Absolutely not. Part of the problem is that China's economy is closed. One of the reasons is that it doesn't have a consumer society because people don't have enough income. That's because of the amount of wealth that the state extracts to pay for high-speed rail, military structures, and energy development. Some of that is good, some of it is excess.

U.S. tariffs won’t create a market that can rival the size and influence of the United States. It would have to be somewhere else that is very rich, and China is not very rich. China is barely in the middle-income category, it has a per capita income at a level that Mexico has been at for decades. It's not binary. So, the U.S. retreat from its leadership position in the world order, which I don't necessarily see as a bad thing, doesn't automatically hand that role over to China, Russia, the European Union, Japan, Brazil, the BRICS, or any other set of players.

Can China gain ground by investing more in countries that are affected by tariffs?

China has invested more in countries that are affected by tariffs, like Indonesia and Vietnam. These countries are very wary of Chinese investment for various historical reasons, and to some extent for ethnic reasons. But China is actually cutting back on its overseas investments because its own population is asking: Why are we giving money to countries that are richer than us? That is a reasonable question.

They have real problems meeting the expectations, demands, and needs of their own population, which is now largely urban. The cities have to function, you can't say, "Go back to the farm and do sustainable agriculture." That phase is long gone in China. So they have to spend more. Half of the population still has rural identity cards. That means they don't get free education beyond primary school. That means 50% of the future workforce won't have more than a primary school education. This is a country with enormous challenges. Can they manage them? Probably yes, but there is not much room for maneuver. Their own slowing economy will be hurt by these tariffs. I don't think that's Trump's intention, but it will hurt them.

What impact might the tariffs have on Brazil and Latin America? Do you think China will become more attractive?

I don't know specific commodities from specific places, but my general starting point is that a 10% distribution across Latin America won't have much of an impact on the price for consumers in those countries. You'll export the same amount; we'll pay more for whatever the commodity is, flowers from Colombia, grapes, wine from Argentina or Chile. Since the tariff is general, it doesn't give Chile an advantage on wine over Argentina, because they both have the same amount. Most of what Latin America exports to the United States doesn't go to China.

In short, what are the main consequences of tariffs in terms of the geopolitical landscape and the domestic landscape?

It destabilizes the international trading system that has benefited most countries for a long time. It will force adjustments, that is number one. And number two is that it undermines the image of the United States, and therefore its influence as a stabilizing, predictable, and broadly beneficial member of the international community. It disrupts economies and undermines American influence and attractiveness.

In the end, does anyone benefit from Trump's tariff policies?

No one. This is not a policy that works to anyone's obvious benefit. It upsets everyone. And there is no alternative to the United States, in the sense that the Soviet Union was during the Cold War. China is not that, and China does not want to be that.

Donald Trump’s decisive victory in the 2024 U.S. presidential election has reignited debates about the United States' role in a world increasingly defined by geopolitical tensions, economic uncertainty, and democratic recession. The return of Trump to the White House will have profound implications for Asia. To assess the stakes for the region, APARC convened a panel of experts who weighed in on the potential risks and opportunities the second Trump administration’s policies may pose for Asian nations and how regional stakeholders look at their future with the United States. Another panel, organized by APARC’s China Program, focused on what’s ahead for U.S.-China relations.

High Stakes for the Asia-Pacific

APARC’s panel, The 2024 U.S. Presidential Elections: High Stakes for Asia, examined how the return of Trump’s political ideology and the macroeconomic effects of his foreign policy will affect Asia.

“We are witnessing the solidification of Trumpism as an influential political ideology,” stated APARC and Korea Program Director Gi-Wook Shin at the opening of the discussion, “one that has begun to transcend traditional  American conservatism. Trumpism — marked by a blend of economic nationalism, nativism, and a strongman approach to leadership —could have a huge impact not only in American society but also on the liberal global order.”

According to Shin, Trump’s policies, particularly his focus on unilateralism and economic self-interest, could significantly alter the political and economic dynamics of the Asia-Pacific region.

Political scientist Francis Fukuyama, the Olivier Nomellini Senior Fellow at the Freeman Spogli Institute, argued that Trump’s victory was no longer an anomaly but part of a larger trend of working-class voters shifting allegiance from the Democratic to the Republican Party. Fukuyama expressed concerns about Trump’s aggressive economic policies, including imposing broad tariffs on allies and adversaries alike, and warned that such policies could result in inflation, trade tensions, and long-term economic instability. In addition, he asserted that Trump’s reluctance to engage in foreign conflicts could undermine the United States’ commitments to security alliances, particularly in Asia.

APARC Deputy Director and Japan Program Director Kiyoteru Tsutsui emphasized the broader geopolitical implications of Trump’s policies, noting that Trump’s "America First" approach could further erode the international liberal order. He suggested that Japan would face significant challenges navigating the unpredictability of Trump’s foreign policies. According to Tsutsui, “There might be greater pressure to line up with the United States in dealing with China economically, which would  put a great deal of strain on the Japanese economy.” Such an alignment might also muddle Japan’s own diplomatic and security interests.

Gita Wirjawan, a visiting scholar with Stanford's Precourt Institute for Energy and former visiting scholar at APARC, focused on the stakes for Southeast Asia. Wirjawan argued that Trump’s economic policies, such as protectionism and prioritizing economic growth over democratic principles, could embolden right-wing populist movements in Southeast Asia. He suggested that parts of Southeast Asia could be a natural beneficiary of a reallocation of financial capital from the U.S. as companies diversify supply chains by establishing operations outside China in response to Trump’s planned tariffs. Yet, growing economic inequality in Southeast Asia, particularly in urban areas, could fuel the rise of similar nationalist policies, undermining efforts to promote inclusive, democratic development.

Shin highlighted the challenges South Korea might face under a second Trump presidency. Trump will likely demand higher defense payments from South Korea, potentially straining the U.S.-ROK alliance. This could put President Yoon in a tough spot, especially as trilateral U.S.-Japan-Korea cooperation has been progressing well but faces uncertainty. Economically, South Korean firms may struggle if U.S. policies like the Inflation Reduction Act and CHIPS Act are rolled back, as subsidies were crucial for their investments in the U.S. On North Korea, Shin noted that Trump may resume summit diplomacy with Kim Jong Un, leaving South Korea sidelined and potentially sparking an arms race in Northeast Asia. 

The panelists all emphasized that Asia, with its diverse political landscapes, would need to navigate a new era of economic nationalism and geopolitical unpredictability, with potential challenges to economic stability and democratic norms.

A Focus on U.S.-China Relations 

The second panel, "Crossroads of Power: U.S.-China Relations in a New Administration," focused specifically on the evolving dynamics of U.S.-China relations in the wake of the election. Moderated by APARC China Program Director Jean Oi, the discussion featured Shorenstein APARC Fellow Thomas Fingar, and Peking University's Yu Tiejun, the APARC's China Policy Fellow during fall 2024. The panelists analyzed the potential trade, security, and diplomacy shifts between the two global superpowers, particularly in light of Washington's bipartisan consensus on China. 

Central to the discussion was the continuity of U.S. policy toward China under the first Trump administration and the Biden administration. Examples of this continuity included recent tariff increases on Chinese imports, a new U.S. Department of the Treasury program to screen U.S. outbound foreign investments in key sectors, and tighter export controls on critical technologies like quantum computing and advanced semiconductors. The panelists explored the economic and strategic ramifications, noting that these policies could disrupt existing trade patterns. 

Another area of concern was China’s uneven implementation of the 2020 Phase One  trade deal it negotiated with the U.S., in which China had committed to domestic reforms and $200 billion of additional U.S. imports. This failure could buttress the new administration’s plan to increase tariffs, complicating diplomatic efforts between Washington and Beijing. Fingar noted that while China has made efforts to diversify its supply chains, these changes might not be enough to shield it from the effects of U.S. economic policies, which could include escalating tariffs or additional restrictions on Chinese exports. 

The conversation also touched on broader geopolitical considerations, particularly concerning China’s role in the ongoing war in Ukraine. The panelists discussed the potential for cooperation or de-escalation in U.S.-China relations, with China’s positioning on the war serving as both a point of contention and a possible avenue for diplomatic engagement. 

Underscoring the deepening complexities in U.S.-China relations post-election, the panelists highlighted the uncertainty surrounding U.S. foreign policy under a second Trump administration, particularly regarding the role of people-to-people exchanges in fostering mutual understanding.

Both events emphasized the multifaceted consequences of Trump’s return to power for Asia and the global international order. While the discussions highlighted the challenges posed by the rise of economic nationalism, trade tensions, and shifting security priorities, they also pointed to potential areas of cooperation and the evolving dynamics of global diplomacy.

In the Media

From Center Fellow Oriana Skylar Mastro:

What a Second Trump Term Means for the World
OnPoint – WBUR, Nov 12 (interview)

Race to the White House: How the US Election Will Impact Foreign Policy
UBS Circle One, October 23 (interview)

From Visiting Scholar Michael Beeman:

On Korea-U.S. Economic Cooperation in the Era of Walking Out
Yonhap News, Nov 20 (featured)

Trump Looking for Trade 'Reset' with Most Countries: Ex-USTR Official
Nikkei, Nov 16 (interview)

How Southeast Asia Can Weather the Trump Trade Typhoon
The Economist, Nov 14 (quoted)