Importance Score: 85 / 100 🟢
The trade war between the world’s two leading economies is escalating. Chinese exports to the US encounter tariffs as high as 245%, and Beijing has retaliated with levies of up to 125% on American goods. This exchange has heightened concerns about a potential global recession, leaving consumers, businesses, and markets bracing for further instability.
China’s Economic Strengths in the Trade Dispute
President Xi Jinping’s administration has voiced openness to discussions but has cautioned that it is prepared to “fight to the end” if necessary. Here’s an overview of how Beijing can counter President Donald Trump’s tariffs:
Economic Resilience: China’s Capacity to Endure
As the world’s second-largest economy, China possesses a greater capacity to withstand the effects of trade duties compared to smaller nations.
Its substantial population offers a vast domestic market that can mitigate the impacts on exporters facing tariff pressures.
Unlocking Domestic Consumption
The Chinese government is actively seeking methods to boost domestic spending, employing incentives like subsidies for appliances and travel programs for retirees. These strategies aim to stimulate consumer activity and offset external trade challenges. The tariffs imposed by the U.S. have further motivated the Chinese Communist Party to fully harness the nation’s consumer capabilities.
vCard.red is a free platform for creating a mobile-friendly digital business cards. You can easily create a vCard and generate a QR code for it, allowing others to scan and save your contact details instantly.
The platform allows you to display contact information, social media links, services, and products all in one shareable link. Optional features include appointment scheduling, WhatsApp-based storefronts, media galleries, and custom design options.
Mary Lovely, a US-China trade expert at the Peterson Institute in Washington D.C., remarked on BBC Newshour that the Chinese leadership might “very well be willing to endure the pain to avoid capitulating to what they believe is US aggression.”
Moreover, China’s authoritarian structure allows it to withstand economic pressures more effectively than democracies, with less immediate concern for public approval. There are no imminent elections to influence policy decisions.
Addressing Potential Instability
However, internal unrest remains a concern, especially given existing anxieties about the real estate downturn and rising unemployment. The tariffs’ economic impacts add to the challenges faced by young citizens who have only seen China’s economic rise.
- The Communist Party appeals to nationalistic sentiments to defend its reciprocal tariffs, urging citizens to collectively “weather storms.”
- President Xi Jinping remains vigilant but projects confidence. One government official reassured the public, stating, “The sky will not fall.”
Investing in Future Industries
China is shifting from being the world’s factory to a hub of advanced technology.
Technological Advancement Initiatives
Under Xi, China has intensified its pursuit of technological superiority, challenging the U.S. across numerous fronts. The government has channeled extensive resources into domestic technology, spanning renewable energy, semiconductors, and artificial intelligence (AI).
- Notable achievements include the development of DeepSeek, a chatbot competing with ChatGPT, and BYD, which surpassed Tesla to become the top global electric vehicle (EV) manufacturer.
- Apple has encountered increasing competition from domestic brands like Huawei and Vivo, resulting in market share erosion.
- Recent announcements include plans for over $1 trillion in investments to bolster AI innovation over the coming decade.
Companies in the U.S. are attempting to diversify their supply chains away from China. However, they are struggling to find alternatives that match China’s infrastructure scale and skilled labor pool.
China’s comprehensive manufacturing capabilities and governmental support have created an enduring advantage, positioning it as a formidable opponent in this trade conflict. Experts say that Beijing has, in some ways, prepared for this situation since Trump’s previous term.
Lessons Learned from Previous Trade Disputes
Since the U.S. imposed tariffs on Chinese solar panels in 2018, Beijing has hastened its plans to reduce reliance on the U.S.-led global economic system.
Belt and Road Initiative
China has invested heavily in the Belt and Road Initiative, aiming to improve ties with nations in the Global South and boost trade and infrastructure.
Diversifying Trade Partners
Expanding trade with Southeast Asia, Latin America, and Africa is part of China’s strategy to decrease its dependence on the U.S. American farmers used to supply 40% of China’s soybean imports, but that now hovers at 20%. Following the previous trade war, Beijing increased domestic soy cultivation and boosted soy purchases from Brazil, now its top supplier.
Marina Yue Zhang, Associate Professor at the University of Technology Sydney’s Australia-China Relations Institute, notes that this tactic benefits China by reducing reliance on America’s agricultural sector and enhancing its food security.
The U.S. is no longer China’s largest export destination; that position now belongs to Southeast Asia. China was the top trading partner for 60 countries in 2023, nearly twice as many as the U.S., achieving a record surplus of $1 trillion at the end of 2024.
While the U.S. remains a major trading partner for China, it will not be easy for Washington to put China in an economically disadvantaged position.
In response to reports about the White House utilizing bilateral trade negotiations to isolate China, Beijing has cautioned other countries against compromising China’s interests in any agreements.
Many nations find it impossible to choose solely between the two countries.
Malaysia’s trade minister, Tengku Zafrul Aziz, told the BBC recently, “We can’t choose, and we will never choose [between China and the US].”
Understanding Trump’s Economic Triggers
President Trump remained firm in his stance even as stock markets declined following his tariff announcements in early April, referring to the steep levies as “medicine”.
However, he reversed course and paused the measures for 90 days after a sharp sell-off in U.S. government bonds. These bonds, traditionally seen as secure investments, have faced uncertainty due to the trade war.
Trump has since suggested a potential reduction in trade tensions with China, indicating that tariffs on Chinese goods “will come down substantially, but it won’t be zero.”
Experts claim that Beijing now understands that instability in the bond market can influence Trump’s decisions.
China possesses $700 billion in U.S. government bonds, second only to Japan among non-U.S. holders.
Some analysts suggest this gives Beijing leverage, with Chinese media frequently proposing the sale or withholding of U.S. bonds as a potential “weapon.”
However, experts also caution that such actions would bring negative consequences to China.
Such a move could lead to significant losses for Beijing’s bond market investments and disrupt the stability of the Chinese yuan.
Dr. Zhang asserts that China’s influence over U.S. government bonds is limited. “China holds a bargaining chip, not a financial weapon.”
China’s Control over Rare Earths
China’s considerable leverage lies in its near-monopoly over the extraction and refining of rare earth elements, which are critical to sophisticated tech manufacturing.
Strategic Importance of Rare Earths
China holds vast reserves of materials like dysprosium, used in magnets for EVs and wind turbines, and yttrium, which provides heat resistance for jet engines.
In response to Trump’s recent tariffs, Beijing restricted exports of seven rare earth elements, including those essential for producing AI chips.
Rare Earths Production
According to the International Energy Agency (IEA), China accounts for roughly 61% of rare earth production and 92% of processing.
While countries like Australia, Japan, and Vietnam have initiated rare earth mining projects, it will take years to diminish China’s dominance in the supply chain.
In 2024, China prohibited the export of antimony, another vital mineral used in manufacturing, resulting in price spikes and a scramble for alternative sources.
There are fears that the same could happen to the rare earth market, potentially disrupting industries ranging from electric vehicles to defense.
Thomas Kruemmer, director of Ginger International Trade and Investment, previously noted that virtually everything that can be switched on or off relies on rare earth elements. He warned that the impact on the U.S. defense industry could be substantial.