The Trade Implications of the Trump Presidency

Donald Trump has won the US presidential election; Republicans have won control of the US Senate and the US House of Representatives. There is now a conservative majority on the Supreme Court and it is expected that conservative judges will continue to be appointed to the federal judiciary. The Republican control of the US Congress will provide the President Elect with significant political leverage for advancing his agenda by passing legislation aligned with his policies. The President Elect has promised sweeping change in his second term, what can we expect?

In light of the President Elect's re-election and the Republican Party's control of the US Congress, significant changes are anticipated in US trade policies, particularly targeting Chinese mainland and Hong Kong SAR. This client alert delves into the potential implications of these policy shifts, including the appointment of key political figures, the imposition of tariffs, export controls, and further sanctions. Companies operating in affected sectors should prepare for these changes by reviewing their business strategies and considering necessary adjustments to navigate the complicated evolving geopolitical landscape.

One of the most significant tasks for any US president is staffing their administration. A president is responsible for about 4,000 political appointments, 1,200 of which require Senate confirmation. With Republican control of the US Senate, the President Elect should face no obstacles in having his appointees confirmed but there are questions about the experience and character of some nominees.[1] Each pick for the Administration's top jobs will testify before a Senate committee and face questioning before being voted on by the full Senate. If enough Republicans break from the party the nomination will not be approved. We expect the President Elect's candidates to mostly be approved without challenge. The President Elect's transition team has already begun the process of vetting potential candidates for key positions in his administration, even though the President Elect will not start his second term until January 20, 2025.

There are rumors as to who the President Elect will pick to fill the most influential positions of his administration. Many of them are well-known critics of China who support "decoupling" the US economy from China, the world's second largest economy, view China as a threat to national security, economic competition and US interests as a whole.

On the campaign trail, the President Elect has said that tariffs are the greatest thing ever invented, promising that tariffs on foreign goods entering the US will raise huge amounts of money for the US government.[8] The President Elect has big plans to impose massive tariffs- he has said he would impose a 10% to 20% blanket tariff on imports from most countries and has threatened a 60% tariff on imports from China.[9] The President Elect's formal campaign plans include the "Trump Reciprocal Trade Act", where the Trump administration will raise tariffs to foreign levels when foreign tariffs are higher than US tariffs, in other words, an "eye for an eye" tariff policy to ensure "fair trade."[10] Tariffs are one of the President Elect's top economic priorities and he is likely to have help from a Republican-controlled Congress to enact his tariff plan.

Some members of the Republican Party in Congress have spoken out against increasing tariffs and support free trade, including outgoing Senate Minority Leader Mitch McConnell, but the President Elect has argued that he can impose protectionist tariffs without Congressional approval under tariff-setting authorities delegated to the President, which he used extensively during his first term as President. For example, the Trump administration used Section 301 of the Trade Act of 1974 to impose four rounds of increased tariffs on about two­ thirds of US imports from China.[11] If the President Elect decides to use executive authority, then there will likely be litigation like the on-going In re Section 301Cases, in which thousands of importers are contesting the legality of the Section 301tariffs imposed by the first Trump administration.[12]

Options include upfront purchasing of inventory before the inauguration in 2025. Many companies will look at offshoring manufacturing or portions of manufacturing to enable a change in the country-of-origin designation.

Companies should now include language in supply contracts to allow for amendment or termination as a consequence of new adverse regulation, what some in the legal industry have called a "Trump Majeure" clause. Redesigning supply chains, considering alternative sourcing and sales, and other strategic thoughts to the impact of tariffs on business should be at the forefront of the 2025 strategic planning of manufacturers and others likely to be affected if there is a dramatic tariff increase.

We can expect that the President Elect will continue US President Joe Biden's approach to strengthening the US export control regime to achieve economic and national security objectives. This approach is not so different than how the President Elect leveraged export controls against adversaries, including China, in his first term as President. For example, at the end of the Trump administration in December 2020, the US Department of Commerce's Bureau of Industry and Security reconstituted the Military End User ("MEU") list for China and tightened license requirements for PRC firms on the MEU list. Under Trump's first administration, the US added various PRC semiconductor-related firms to the "Entity List", requiring a license for any US export of Export Administration ("EAR") items to listed entities.[13]

Following the passage of the CHIPS and Science Act (the "CHIPS Act") in 2022, US regulators imposed controls on certain advanced semiconductors and semiconductor manufacturing equipment to provide US firms with a competitive advantage, address national security concerns and hinder China's ability to develop and mass-produce advanced chips. [14] Although the President Elect has criticized the CHIPS Act, it will likely remain in place. While he may enact some reform, the overall aim of the CHIPS Act aligns with the President Elect's agenda to bolster US manufacturing. Companies awarded US federal funding under the CHIPS Act are subject to a 10-year ban prohibiting them from expanding semiconductor manufacturing into China, Russia, and other "countries of concern", among other restrictions on China.[15] The Biden administration is working quickly to finalize CHIPS Act agreements with semiconductor manufacturers before the President Elect takes office in January and before he has the opportunity to work with Republicans to reform the Act.[16]

As with tariffs, smart strategic companies are evaluating their 2025 supply chains and considering contract language that would help mitigate the effects of unfavorable regulation. Parties at risk of an Entity Listing should reconsider their corporate structure and what areas of the business will be affected if additional export controls are deployed or if one business line of the company is placed on the Entity List. In the past the Trump administration often defaulted to Entity Listing rather than the imposition of sanctions, which are viewed as a more draconian measure. An Entity Listing hinders and slows business and product development, whereas sanctions can completely stop a business from trading.

During the Trump administration, the US imposed a substantial number of sanctions on China, Iran, and Russia-three countries that were considered major adversaries to US national security, foreign policy interests, and economic stability. For Iran, the President Elect plans to renew the "maximum pressure" campaign against Iran from his first term, increasing sanctions on Iran's oil exports as a measure to stop violence in the Middle East.[17] With respect to China, the President Elect's plans will continue to focus on US economic security.

Chinese entities are at greater risk of sanction, especially companies operating in the Middle East. The Select Committee on the CCP (see below), may more aggressively call for sanctions of Chinese parties. The Chinese military company list (CMIC) will certainly expand and some of those companies, which are now banned from receiving US investment, may be targeted and sanctioned to seize their assets in the US and to stop them from transacting business that touches the US financial sector. Sanctions will be disruptive to markets where those companies are trading and doing business.

The US House Select Committee on the Strategic Cooperation Between the United States and the Chinese Communist Party has been staffed by both Republican and Democratic members, with the Republican members seeming to dominate the work of the Committee. The Committee has been hawkish on China issues, and even recently targeted multinational entities with China operations.

Historically, the regulatory agencies under the Biden administration reviewed and considered the views of the Select Committee, when the Select Committee issued letters demanding action against certain Chinese companies and industries. However, the views of the Committee do not always lead to responsive steps by the agencies. Under the new administration, it seems likely that agencies headed by the President Elect appointees will give greater deference to anti­ China regulatory proposals from the Select Committee.

Hong Kong SAR does not implement unilateral sanctions. Rather, its sanctions laws implement sanctions issued by the United Nations Security Council.

Despite the SAR's official stance not to recognize or implement US sanctions regimes under local laws, financial institutions in the region must remain vigilant to observe the impact of US sanctions on their businesses. In particular:

Since November 2020, US has imposed prohibitions through Executive Orders issued by the US President on certain transactions in securities linked to companies on the CMIC list. You may refer to our previous client alerts on the implications for the SAR's securities market arising from the US sanctions against Communist Chinese Military Companies.[18]

*Any reference to "Hong Kong" or "Hong Kong SAR" in this article shall be construed as a reference to "Hong Kong Special Administrative Region of the People's Republic of China".

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封面图源：洪流 ·Tillian Reeves