January 21, 2025
By Daniel Silverberg and Elena McGovern, Co-Heads of Capstone’s National Security Practice
We have been extensively analyzing the potential direction of travel for Trump’s China policy for companies and investors, particularly on industrial policies such as enhanced export controls on US goods, a potential import ban of Chinese technology, and sectors most likely to be hit by tariffs. Three key factors will influence Trump’s US-China policy.
1. Trump Personnel Fights Will Create Inconsistent China Policy
There is no singular Trump policy on China but rather a collection of warring factions whose differences will shape the implementation of President Trump’s China agenda. Each policy must be assessed individually through the prism of these factions.
Export control regulations, like those announced earlier this week by the Biden administration requiring review of AI technology exports, pit GOP hawks, MAGA advocates, and Silicon Valley leaders-turned Trump officials against each other.
On one side are traditional GOP hawks, led by Secretary of State nominee Marco Rubio and National Security Advisor Michael Waltz, who seek strong US military and economic engagement globally to combat Chinese expansionism and will likely support keeping or even expanding the export control regulations. This group perceives China as the greatest existential threat to the US, and it received a boost this week with the appointment of David Feith as senior director for technology at the National Security Council (see Capstone commentary here). The current occupant of this position, Tarun Chhabra, served as one of the key architects of Biden’s China tech policy. Feith – a well-respected GOP hawk – will likely support an aggressive posture on items such as import bans of Chinese technology and restrictions on US semiconductors that could make their way to China.
A competing faction of technologists – led by Elon Musk and economic libertarians who will strongly resist US tech regulations – will also have a strong voice on technology policy. These figures include Paypal founder Peter Thiel, venture capitalist David Sacks, and lower-level appointees such as venture capital executives Scott Kupor and Sriram Krishnan. This group will seek to reduce, or potentially eliminate altogether, the export control restrictions imposed by Biden on US companies.
The MAGA faction, led by Donald Trump Jr. and Tucker Carlson, will likely side with the Musk ‘tech bros’ regarding enhanced technology regulation, given overlapping libertarian sentiments. This group’s principal fight will be over ending the Ukraine war, avoiding conflict over Taiwan, reducing the global US military footprint, and pursuing a deal with China. They are also unnerved by numerous hawkish appointments, and their hostility manifested itself in the hostile tweet Trump issued regarding the appointment of Morgan Ortagus as deputy Middle East special envoy.
We expect technologists to prevail on export regulations and slow down the implementation of Biden’s rules, the impact of which will enhance business for US companies such as Nvidia and Microsoft. They are passionate about these issues, and there is a dearth of technological expertise inside the hawkish faction. However, one should not count out the hawks, particularly when it comes to military spending or posture on Taiwan.
2. Capitol Hill Response Could Raise Issues with Trump Tariffs
When direct congressional interests are threatened, Members of Congress might stand up to Trump quickly. For example, in 2018, Sen. Grassley threatened Trump’s Environmental Protection Agency (EPA) administrator, Scott Pruitt, over his changes to the Renewable Fuel Standard (RFS), which negatively impacted Iowa ethanol growers (38 Senators, including several GOP members, had earlier sent a letter to Pruitt). Grassley allegedly raised hell with Trump about the EPA’s RFS changes, and Pruitt’s ethical lapses ultimately gave cause for his dismissal.
In the case of tariffs, GOP Members will likely lash out if tariffs result in job losses in their districts. Trump lost capital with GOP members last month for -flopping – twice – before even taking office over key policy initiatives, the first on the end-of-year spending package and the second on the path for comprehensive legislation on taxes, immigration, and other Trump priorities. His status as a one-term lame-duck president on day 1 means that Trump will not have as long a leash as he enjoyed last time. Should tariffs begin to harm US jobs, GOP members will push back, although it remains to be seen whether such efforts would be successful.
3. China’s Response to Trump Trade Restrictions
The least understood element of US-China dynamics is what China might do in response to Trump’s actions. China repeatedly has responded to tit-for-tat with US actions. For example, last December, China imposed its “most stringent” critical minerals ban on exports to the US in response to President Biden’s restriction of US semiconductor technology exports to China to slow China’s development of advanced dual-use technology. According to CSIS, two of the minerals China banned – gallium and germanium – are critical to US semiconductor manufacturing for defense items. China’s actions will determine how far Trump pushes tariffs and readiness for a potential deal. As Trump personnel take power and the president lays out his immediate agenda, Capstone will closely follow for our investor and corporate clients.
Daniel Silverberg, Co-Head of Capstone’s National Security Practice
Elena McGovern, Co-Head of Capstone’s National Security Practice
Read more from Capstone’s National Security Practice:
US-China Tensions: Growing Restrictions and Expanding Global Risks
How the Dept. of Government Efficiency Will Use Its Platform
Bipartisan Global Possibilities: Underappreciated Foreign Policy Developments
