China’s rapid economic rise has drawn countless Western businesses into its vast market. But that bilateral relationship is now under severe strain. Escalating tensions between Washington and Beijing are threatening global commerce and forcing businesses to fundamentally rethink their China strategies. The trade wars launched under the Trump administration have further altered the dynamics between the two countries, entrenching a more adversarial posture on both sides.
Ker Gibbs is uniquely positioned to make sense of this moment. As former President of the American Chamber of Commerce in Shanghai — a role he held across the Obama, first Trump, and Biden administrations — he witnessed these shifts firsthand. A Mandarin speaker who spent more than two decades living in Asia, Gibbs has also held executive positions at Apple, Disney, and HSBC, where he served as head of technology and media for greater China. He is currently a partner at Foresight, a financial advisory firm, and an executive in residence at the University of San Francisco.
In his new book, The Fragile Dragon: Trade, Trump, and China’s Vulnerabilities, Gibbs challenges one of the most common assumptions in the U.S.–China discourse: that China is an unstoppable economic superpower. Instead, he argues that China is structurally more vulnerable than it appears — exposed by its dependence on global markets and foreign technology, undermined by internal imbalances in debt and property, and constrained by the political rigidity of centralized control.
Vimi Wang: The “Fragile Dragon” sounds provocative given China’s rapid rise. A growing number of people in the United States and the West generally seem convinced of China’s economic strength. Why “fragile”?
Ker Gibbs: Policymakers in Washington look at China and see a rising power that has come to dominate several key industries — electric vehicles, batteries, solar panels — and appears poised to do the same in semiconductors and AI. What’s happened is that China has taken on the image of a ten-foot-tall enemy in the American imagination, and I think that’s a problem in more ways than one.
If we define China as an enemy, it will almost certainly become one. And if we treat China as some kind of invincible juggernaut, we distort our understanding of what we’re actually dealing with. Yes, China is a dragon — it is powerful. Its economy, labor force, companies, and capacity for innovation are all formidable. But it is not strong at everything, and it has real problems.
Some of those problems are geostrategic. Some are self-inflicted — policy choices that I believe create genuine structural weakness. And some are simply facts of geography that China cannot change, no matter what it does. Take China’s geographic position. It shares land borders with fourteen countries and has had border disputes with most of them going back centuries. Today, the most visible is the ongoing dispute with India, but that’s only part of the picture. On its maritime borders, China faces friction with Japan and the Philippines, and of course the broader tensions in the South China Sea.
Now compare that to the United States. We have two land borders, both with relatively friendly neighbors, and two vast oceans on either side. Geographically, we are in an enviable position. The difference between two land borders and fourteen is not a small thing. That is the kind of fragility I’m talking about. I am not arguing that China is on the verge of collapse — that is not my point at all.
VW: Given your experience of doing business in China, what did you see on the ground that convinced you this superpower had real fragilities in its foundation, before the data caught up?
KG: China’s political economy is, in many ways, a double-edged sword. The centrally controlled system does provide a degree of coordination and efficiency that you simply don’t find elsewhere. For businesses operating there, that clarity can actually be quite valuable — the government is rarely shy about signaling where it wants investment and where it doesn’t. If you’re operating in a sector or region the government supports, you know it. If you’re not aligned with the plan, you find out that too, usually by things becoming very difficult very quickly.
To its credit, the government communicates its priorities through its five-year plans, which the foreign business community studies closely. They do a reasonable job of mapping out what the central government wants to encourage and what it wants to discourage.
But here’s the tension: while the goals are communicated, the decision-making process itself is deeply opaque — and that’s entirely by design. China’s leadership has no interest in making its internal workings legible to outsiders. In that sense, it’s the polar opposite of the United States, where transparency sometimes goes to a fault. You can turn on C-SPAN and watch a Senate committee debate national security in real time. The idea of a camera inside Zhongnanhai, however, is simply unthinkable.
And that opacity points to something deeper. When a system has to control information, capital, and talent all at once — when control is the operating principle — that is not a sign of strength. That is a sign of fragility. A truly confident system doesn’t need to control everything.
VW: That point about the double-edged sword is striking — the tighter the grip, the more it reveals an underlying weakness. In your book, you write about several slow-moving crises inside China. Which ones loom largest for you, and what has kept them from fully hitting the economy?
KG: The crisis everyone seems focused on is demographics — the idea that China is simply running out of people. The labor force peaked around 2012 and has been declining since, which is a real problem. But I actually frame it less as a demographic crisis and more as a productivity crisis.
On the demographic side, there is very little any government can do to influence how many children people choose to have. Right now, the CCP is doing what it does — slogans, banners, pressure on women to have more children. It doesn’t work. Families make those decisions based on their own circumstances, not government campaigns.
What the government can control is productivity. In economics, GDP growth comes from three inputs: labor, capital, and productivity. If you look at China’s highest growth years — the double-digit expansion of the 1990s and early 2000s — the population had already flattened out long before that boom. What was driving growth was an extraordinary surge in productivity, and that engine has since stalled. The crackdown on the technology sector a few years ago is a clear example of policy choices actively suppressing productivity at exactly the moment when AI makes it most critical.
There’s a real irony here. In the early 2000s, the government took a remarkably hands-off approach to internet companies — Sina, Sohu, Baidu all developed under relatively light regulation. That has changed significantly under Xi Jinping, who is a fundamentally different kind of leader. He is prioritizing equality over high growth, and while that is not necessarily wrong as a value, it does put a ceiling on GDP expansion.
Some analysts look at this trajectory and say China is headed for its own lost decade — a Japan-style stagnation. I think that is the most probable outcome given current policy choices, but I don’t believe it’s inevitable. Official figures put GDP growth at around four to five percent, and while nobody takes all government statistics at face value, the real number is probably still somewhere in the range of two to three percent. Applied to an economy the size of China’s, that is still an enormous amount of economic activity.
Trade is another slow-moving crisis worth watching closely. China is deeply dependent on exports — it has built enormous industrial capacity that requires foreign markets to absorb. It trades with almost every country in the world and is the most important trading partner for roughly 80 countries, which is a remarkable figure. But it runs trade imbalances with nearly all of them. Australia is the notable exception, exporting minerals to China and actually running a surplus. Almost everywhere else, the imbalance runs in China’s favor — and that is increasingly becoming a source of friction that China cannot simply export its way out of.
VW: That transitions well into bringing the United States into the picture. The Trump trade war — first in 2018 and now again in the second administration — was intended to force structural changes in China’s economy. Did it actually hurt China, or did it hand Beijing the political cover to accelerate self-sufficiency and reduce dependence on the West?
KG: Much more the latter. The trade war did not meaningfully damage China, and it certainly did not force any structural changes in its economy. If anything, it gave Beijing greater political impetus to pursue self-sufficiency and accelerate diversification away from the United States. China’s trade with the U.S. is down, but its trade with the rest of the world is up. The net effect has arguably been more damaging to American interests than Chinese ones, representing a classic case of the law of unintended consequences.
Trade policy is genuinely difficult to get right. And one of the reasons is that business behaves like water — it always finds a path. You close off one channel, and it flows somewhere else. We saw this clearly during the first Trump trade war. When the U.S. imposed tariffs on Chinese goods and China retaliated, California almonds suddenly faced steep import taxes entering China. Almost immediately, demand for almonds in Vietnam surged. The reason was obvious — Vietnam was buying them and transshipping them into China. That is what happens when you set policy without accounting for how markets adapt.
At the same time, it is important to not overstate the decoupling. The U.S. and Europe will remain critically important to the Chinese economy for the foreseeable future, which brings me back to a fundamental point — this relationship has to be repaired. China’s tensions with Europe follow a similar pattern, but there is an additional complication there: Ukraine. That conflict is the elephant in the room that is effectively preventing any meaningful reset between China and Europe until it gets resolved.
VW: Even though this looks like a bilateral relationship, it really plays out across the entire international stage. My next question builds on that: five years after the tariffs, supply chain rewiring, and Covid-19, who actually came out ahead in the economic interdependence battle — Washington or Beijing?
KG: Honestly, it is hard to call a winner because both countries have been damaging each other, and in many ways, themselves. If you look at the U.S. economy right now, it’s genuinely difficult to characterize. The stock market has held up, but employment, GDP growth, and most other indicators are softer, and inflation has been a persistent problem. I wouldn’t call the U.S. economy weak, but it’s certainly underperforming across most key indicators.
China’s economy, on the other hand, is weak. You could attribute it to a post-COVID hangover, but I’d be more precise: it’s a post-COVID policy hangover. The problem wasn’t COVID itself. The problem was how China responded to it, particularly in year three, when the virus had mutated from Delta to Omicron and the zero-COVID policy had clearly stopped working. Rather than pivot, Beijing held the line — and that rigidity cost them something harder to recover than GDP: public trust.
For the first year and a half to two years, the government’s pandemic management was actually quite effective, and people trusted it. But when the policy failed to adapt and the lockdowns kept coming, that trust eroded. The result has been persistently low consumer confidence that is only now beginning to recover.
So, to directly answer your question, I don’t think there is a clear winner. What’s clear is that both countries have been taking actions intended to hurt each other, and both have ended up hurting themselves in the process. Will the U.S. come out of this with a better trade balance and a manufacturing renaissance at home? I’m not seeing evidence of that. And China, while it has meaningfully reduced its dependence on the United States, has not come close to eliminating it particularly in technology, where the two economies remain deeply interlocked.
VW: Pivoting back to the business side of U.S.-China relations — from your years leading the American Chamber of Commerce in Shanghai, what is the single biggest mistake foreign companies still make when they enter China?
KG: Every situation is different, but there are patterns. eBay is one of the cases I write about in the book, and their failure in China was largely self-inflicted. At the time, CEO Meg Whitman saw China as a must-win market, leading her to exert too much control from headquarters. In a market defined by speed, that was fatal.
The China market moves fast, and fast markets require fast decisions. When every call has to go back to California, you lose days just to time zone changes and approval chains. Meanwhile, a local competitor makes the same decision instantly. That gap compounds quickly, and eBay never closed it. There was also a cultural miscalculation. When eBay was competing against Taobao, they didn’t fully grasp what kind of fight they were in. They continued operating in a methodical, structured way while their competitors were more adaptive.
Looking at the current landscape, the mistake I see companies making now is the opposite one — an instinctive resistance to joint ventures. In the 1980s and 90s, companies like Ford and GM were effectively forced into partnerships with state-owned enterprises that were large, inefficient, and primarily optimized for extracting technology and implementing government policy. Those were genuinely poor partners, and the experience left a lasting impression on how Western companies think about joint ventures in China.
But the situation today is fundamentally different. I was on the phone with a company I’m advising right before this conversation, and my recommendation to them was to seriously consider a joint venture. The quality of potential Chinese partners in 2026 — their management teams, their capabilities, their market sophistication — is night and day compared to what was available thirty years ago. In many cases, these local companies don’t need a foreign partner. They may want one, for specific reasons, but they don’t need one. That changes the dynamic considerably.
The mistake, then, is assuming that going it alone is automatically the best option. The China market is intensely competitive and genuinely complex. For many companies today, partnering with or even licensing to a local firm may be the smarter path.
VW: Is China’s manufacturing dominance permanent, or are we already in the early signs of a structural shift that just hasn’t shown up in the headlines yet? China seems intent on keeping manufacturing at every level of the supply chain. How possible do you think this is?
KG: Manufacturing today is far more segmented than people often assume, and I think that distinction matters enormously when answering this question.
At the low end — basic metal fabrication, cut-and-sew garment work, simple assembly — China has already moved on, largely for cost reasons. Those industries have migrated to Vietnam, Bangladesh, Mexico, and elsewhere, and I don’t think they’re coming back. China has simply priced itself out of that tier, which is itself a sign of economic maturation.
But advanced manufacturing is a different story entirely. China is fundamentally a builder economy, and that runs deep — culturally, institutionally, infrastructurally. Its factories today are clean, highly automated, and increasingly robotics-driven. That is not the image most people carry of Chinese manufacturing, but it is the reality. And I think China will remain formidable at making things for the foreseeable future.
What concerns me more is the American side of this equation. We have drifted too far in the opposite direction — convincing ourselves that we only want a services economy, that everyone should have a four-year college degree, and that the trades are somehow beneath us. That is a serious miscalculation, and it needs to be reexamined as we navigate this shift.
The deeper question for the United States is: what kind of economy are we trying to build, and what kind of workforce do we need to support it? I don’t see that conversation happening seriously right now. What I see instead is Republicans and Democrats locked in the same political food fights while that fundamental question goes unanswered.
VW: Finally, out of competition, containment, and coexistence, which one should Washington be aiming for, and what’s the most dangerous illusion policymakers still hold about China?
KG: The most dangerous illusion is containment itself — and specifically, the confusion between military containment and economic containment. On the military side, containment makes sense. Pushing back in the South China Sea or deterring an invasion of Taiwan. Those are legitimate strategic objectives, and that kind of deterrence is both necessary and achievable.
But economic containment is a fantasy. Containing the Chinese economy cannot be done, and frankly, it is not something we should want. We have lost the thread of how the United States has historically dealt with adversaries. Go back a hundred years — our enemies were Japan and Germany. We defeated them militarily, and then we did the exact opposite of containing them. We invested in their reconstruction, because we understood that prosperous nations become markets and partners, not perpetual threats. That logic did not fail us.
I am not suggesting we simply replay the postwar playbook — the world is too different for that. But the underlying principle still holds. If we define China as an enemy, we will make it one. And if containment becomes our organizing framework, we are committing ourselves to a strategy that is both unachievable and self-defeating.
The right approach is competitive coexistence — engaging China seriously on trade and economics while maintaining clear boundaries on security. That is harder than picking a fight, and it requires more sophistication than Washington has shown recently. But it is the only path that leads somewhere other than mutual damage.