China has a new plan to confront Trump: the “supply chain war”

HONG KONG — In the world of cheap drones, Skydio was America’s great hope. Its autonomous flying machines offered U.S. defense and law enforcement agencies an alternative to Chinese manufacturers, free from the security concerns linked to dependence on Chinese supply chains.

But Skydio’s vulnerabilities became apparent days before the U.S. presidential election, when Chinese authorities imposed sanctions and cut off the company’s access to critical battery supplies.

Overnight, San Mateo, California-based Skydio, the largest American drone manufacturer, rushed to find new suppliers. The move delayed Skydio’s deliveries to its customers, which include the US military.

“This is an attack on Skydio, but it’s also an attack on you,” Adam Bry, the CEO, told customers.

Behind the measure was a message from China’s leaders to Donald Trump, who would go on to win the election with the promise of new sanctions and tariffs against China: Hit us and we will hit back harder.

From the campaign to his Cabinet appointments, Trump has made clear that he believes a confrontation with China over trade and technology is inevitable. Under the first Trump administration, the Chinese government took mostly symbolic and reciprocal measures following U.S. tariffs and trade restrictions. This time, China is ready to escalate its responses, experts say, and may direct aggressive and targeted countermeasures at American companies.

“During Trade War 1.0, Beijing was quite careful about meeting the tariffs that the US imposed,” said Jude Blanchette, a China expert at the Center for Strategic and International Studies in Washington, D.C. “Now they are signaling their tolerance to accept and inflict pain,” he added. “It is clear that, for political reasons, Beijing is not willing to sit idly by and watch as significant new waves of tariffs arrive.”

China had time to prepare. During Trump’s first term, officials in Beijing began drafting laws that mimic U.S. tactics, allowing them to create blacklists and impose sanctions on American companies, cutting them off from critical resources. The aim has been to use China’s status as the world’s factory to mete out punishments.

Since 2019, China has created an “untrustworthy entity list” to penalize companies that harm national interests, introduced rules to punish companies that comply with U.S. restrictions on Chinese entities, and expanded its export control laws. The broader reach of these laws allows Beijing to potentially restrict global access to critical materials such as rare earths and lithium — essential components in everything from smartphones to electric vehicles.

The new tools are part of what a Communist Party publication described as an effort to “provide legal support to combat hegemonism and power politics and protect the interests of the country and the people.”

Collectively, the strategy marks a calculated shift to counter Trump’s expected policies when he takes office. The consequences could significantly disrupt the operations of American companies.

That raises the stakes for business and the economy as the new U.S. administration prepares for its first strike in what could become a second round of more ruthless trade conflict between the United States and China.

Washington’s relationship with Beijing was already tense. President Joe Biden has largely continued Trump’s belligerent policies, sanctioning some Chinese companies and restricting others from the U.S. market. This month, the US government announced a ban on 29 Chinese companies due to links to forced labor in the country’s western region, Xinjiang.

On Monday (25), Trump went further. The president-elect said he would impose an additional 10% tariff on all products entering the country from China.

China has given a preview of the steps it is willing to take to counter US government sanctions.

In September, Chinese authorities accused PVH, owner of Calvin Klein and Tommy Hilfiger, of “discriminating” products in Xinjiang, placing it on their “list of untrustworthy entities.” It was the first time Beijing had punished a foreign company for removing Xinjiang cotton from its supply chain to meet U.S. trade rules.

A few weeks later, one with ties to China’s internet regulator called for an investigation of Intel, an American chip company, for selling products that “constantly harmed” China’s national security and interests. The last company subject to a cybersecurity review, American chipmaker Micron, was ultimately banned from supplying chips to a significant part of the Chinese market.

Chinese rules leave both PVH and Intel trapped in the dispute between the two global superpowers. Other companies may soon find themselves in a similar position. The dilemma for companies is whether and how to follow U.S. trade restrictions, when doing so could trigger Chinese reprisals.

Forcing companies to question their business practices may be China’s intention, experts say. At the same time, Chinese authorities need to strike a balance in their punishments. If they go too far in penalizing foreign companies, they could drive away investors when financial markets are worried about China’s economy.

And in some cases, Chinese companies still need what the United States offers, including microchips in electronic devices or soybeans that Chinese farmers use to feed their livestock. Many of China’s state-owned companies still use computers with Intel chips.

“They have this dilemma where they want to send a signal to the U.S. government, but they don’t want to scare foreign investors and companies too much,” said Andrew Gilholm, a China expert at Control Risks, a consulting firm. “They want companies to know that there is a cost to being too enthusiastic about complying with U.S. and foreign regulations.”

The strategy, he said, is evolving into one that looks more like “supply chain warfare.”

Still, for many companies that depend on China more than China depends on them, Beijing has the ability to inflict significant pain. Skydio spent years building a supply chain outside of China, but remained dependent on the country for one crucial item: batteries.

After China’s sanctions, there is no quick solution. It can take months to make the necessary design changes and secure new suppliers. In a statement, Skydio said it would be forced to ration batteries. This means that its customers, which include Fire Departments, can only receive one battery per drone, greatly limiting an aircraft’s flight time. The company said it planned to have new supplies by spring.

“If there was any doubt, this action makes it clear that the Chinese government will use supply chains as a weapon to advance its interests over ours,” Skydio wrote.

An editorial in , a Chinese Communist Party tabloid, celebrated the success of the sanctions against Skydio, noting in one headline: “US company sanctioned by China ‘screams in pain,’ revealing its American mask.” The article said the reprisal was deserved because Skydio was part of the US government’s efforts to create a “non-red supply chain” outside of China.

The solution for Skydio was simple, continued . Do not “serve as a tool for the United States to contain China” or “be prepared to bear the consequences of such actions.”