Trump 2.0 – Impact on European companies in China

After the re-election of Donald Trump in 2024 as president of the United States, economic tensions between the US and China have become more pronounced. The business environment for multinational corporations (MNCs), particularly European firms operating in China, has also become increasingly complex. 

At the end of May 2025 as part of PwC’s “International Perspective” webcast series, China market experts, including two senior executives from different industries, shared their stories on how they are navigating this situation. Henry Paeckert, Senior Vice President of BASF Greater China, and Olaf Scale, CEO of Rosenberger Group in the Asia Pacific region, talked about the impact US-China trade tensions, including tariffs, are having on their companies. In addition, Asta Nie, PwC China World Trade Management Service Leader, and Jackie Yan, PwC China Chief Economist, provided a broader understanding of the implications for MNCs in China. 

China’s economic transition: Opportunities amid uncertainty

During the webcast, Jackie Yan explained the current state of the Chinese economy, which faces many challenges, both in the near and the medium-to-long term. At the same time, China remains a central pillar of global economic growth. While structural challenges persist, China is projected by the IMF to remain the largest contributor to global GDP growth over the next decade. Growth is expected to come mainly from the following areas:

China’s economy is undergoing a significant transformation. The economy is shifting away from input-driven expansion towards growth based on productivity, innovation and better allocation of resources. Although fixed asset investment has slowed, investments in high-tech industries remain high. Today, approximately 60% of China’s exports consist of mechanical and electronic products – a sign of its technological capacity and capability.

On the demand side, the domestic market still holds significant potential. Private consumption as a share of GDP remains low, below the level seen in Germany and other advanced economies. Even a modest rise in household consumption would inject a significant amount of funds into the Chinese economy. This highlights why many firms view tariffs as short-term headwinds relative to the long-term opportunity.

Navigating trade shocks: Localization as strategic imperative

While the new tariffs have created immediate operational disruptions, their impact depends on each firm’s level of exposure to US trade. Overall, China’s export dependency has declined significantly, from 20% to less than 15% of GDP over the past decade. For European companies with a strong local footprint, the effects of US tariffs are often limited.

During the webcast, both Henry Paeckert and Olaf Scale emphasized the importance of long-term strategy over reactive maneuvering for European companies. Localization of production, R&D and supply chains has emerged as the most resilient approach. Companies like the Rosenberger Group that have invested in local operations now find themselves better positioned. These firms currently produce and sell almost entirely within China, with minimal reliance on imports or exports. According to Paeckert,  clients increasingly favor suppliers with localized supply chains and have turned to BASF, as other companies relying more on imports face greater disruption and reduced reliability. For both BASF and Rosenberger, tariffs, while disruptive, are not seen as fundamentally altering their own strategic direction. Rather, the current situation reinforces the decisions already being implemented.

Asta Nie observed that other companies have deployed a range of operational and financial tools to mitigate the immediate effects of the tariffs, such as suspending imports. In the short term, companies revisit their supply chain sourcing as part of country-of-origin engineering, adjust transfer pricing strategies or engage in government advocacy to obtain tariff exemptions – which gain them temporary relief.

During the webcast, a recurring theme across both industries was the importance of not just producing in China, but also tapping into China’s growing capabilities in research and development. Increasingly, MNCs are using China as a hub for global innovation and not merely as a market or low-cost manufacturing base. Meanwhile, Chinese companies are becoming globally competitive, supported by their growing technological expertise.

Local roots, global intentions

In the coming years, BASF and Rosenberger are expecting both continuity and challenges, both for themselves and other European MNCs. European companies in many sectors remain deeply embedded in the Chinese market. However, overcapacity and intensifying competition are pushing Chinese firms abroad, mirroring the globalization path taken by German companies in the past. For example, China is no longer viewed as an emerging market by BASF, but rather as an advanced market that demands a higher level of local capabilities and strategic clarity. Rosenberger believes that European suppliers will increasingly need to follow their Chinese clients internationally, which is only feasible if they have a solid local base in China.

All these developments have underscored the strategic value of long-term thinking when companies navigate an increasingly complex environment. Tariffs and short-term shocks dominate the headlines, but they should not distract European companies from China’s deeper structural shifts in technology, consumption and productivity. Localization remains the critical strategy for companies. Firms with integrated local operations, from R&D to production, are more resilient and better positioned for adaptation. Ultimately, success depends on people, which means having skilled, adaptive teams on the ground is crucial. For Olaf Scale, thriving in China means more than just showing up – it requires fielding the right team, trained and ready for any kind of challenge.

Conclusion

The recent tariffs have reaffirmed the strategic direction that many European companies had already chosen. Rather than disrupting long-term plans, the return of tariffs has acted as a catalyst, accelerating decisions around localization, innovation and supply chain diversification. For European companies operating in China, the key lies in identifying risk exposures, remaining agile and building for the future.