Five cards China holds in a trade war with the US

The two biggest markets of the world are currently engaged in a business war that is in full swing.

Beijing has responded with a 125 % tax on American goods, and Chinese exports to the US are subject to up to 245 % tariffs. As consumers, businesses, and industry are preparing for more doubt as the likelihood of a global slowdown has increased.

The government of Chinese President Xi Jinping has consistently vowed to engage in dialogue but warned that if necessary, it may “fight to the close.”

What tools does Beijing have to fight US President Donald Trump’s taxes, let’s take a look.

Because China is the second-largest economy in the world, it is better deal with the effects of the taxes than other smaller nations.

With more than a billion individuals, it also has a sizable local industry, which might relieve producers who are struggling with taxes.

Because Chinese citizens aren’t spending enough, Beijing is also fumbling with the codes. However, with a variety of opportunities, such as subsidies for home appliances and” silver trains” for traveling taxpayers, that may change.

And Trump’s tariffs have given the Chinese Communist Party an yet stronger push to access the nation’s consumer possible.

The command does “very also be prepared to bear the pain to prevent capitulating to what they perceive to be US aggression,” Mary Lovely, a Peterson Institute in Washington DC, told BBC Newshour earlier this month.

China has a higher level for suffering as an authoritarian government because it is less concerned with short-term public opinion. There is no vote scheduled to decide its rulers right now.

Turmoil is still a priority, especially given that there is now unease over an ongoing housing problems and job losses.

For younger people who have only ever witnessed a rising China, the taxes ‘ economic uncertainty is yet another blow.

State media has urged people to “weather storms up,” while the Party has been making appeal to patriotic sentiments to support its retaliatory tariffs.

Although Xi Jinping may be concerned, Beijing has maintained a confident and resolute tone thus far. The clouds won’t fall, according to a government official.

China has always been regarded as the country’s stock, but it has invested billions to advance.

It has been in a competition for it dominance with the US under Xi.

It has heavily invested in local technology, from bits to AI to renewable energy.

Examples include the chatbot DeepSeek, which was praised as a formidable rival to ChatGPT, and BYD, which defeated Tesla last year to become the world’s largest electric vehicle ( EV ) maker. Apple has been losing market share to regional rivals like Huawei and Vivo, who have traditionally been its customers.

Beijing recently announced plans to invest more than$ 1 billion over the next ten years to promote AI innovation.

US businesses have tried to relocate their supply chains away from China, but they have found it difficult to find the same level of skilled labor and equipment abroad.

Chinese manufacturers have given the nation a decades-long benefits that may take time to simulate at every level of the supply chain.

Beijing has been preparing for this trade conflict in some ways since Trump’s past word, thanks to its unmatched supply chain skills and state aid.

Beijing has stepped up its plans for a potential beyond a US-led world attempt since Trump levies hit Chinese solar panel again in 2018.

To strengthen ties with the so-called International South, it has invested billions in a controversial business and network program known as the Belt and Road initiative.

China is trying to extricate itself from the US as a result of the expansion of trade with South East Asia, Latin America, and Africa.

American farmers used to import 40 % of China’s soybeans, but that percentage now hovers at 20 %. Beijing stepped up soybean production at home after the last trade war and purchased record amounts of the crop from Brazil, the country’s top soybean supplier.

The technique kills two birds with one stone. According to Marina Yue Zhang, associate professor at the University of Technology Sydney’s Australia-China Relations Institute, it deprives America’s land belt of a once-captive industry and burnishes China’s reputation for food safety.

The US no longer holds the top position for exports in China; it now belongs in South East Asia. In reality, China was the world’s largest trading partner in 2023, almost twice as many as the US. It was the biggest exporter in the world at the end of 2024, recording a document surplus of$ 1tn.

That doesn’t imply that China needs to trade with the US, the largest economy in the world, in a meaningful way. However, it does indicate that Washington’s decision to support China into a part won’t remain simple.

Beijing has warned nations against reaching a deal at the cost of China’s interests following reports that the White House may use bilateral trade negotiations to remove China.

For the majority of the planet, that would be a difficult decision.

Tengku Zafrul Aziz, Malaysia’s commerce secretary, told the BBC last month,” We can’t decide, and we will never choose between China and the US.”

Trump remained steady as stocks fell precipitously in the wake of his abrupt tariff statement in early April, referring to his remarkable levies as “medicine.”

He made a U-turn, though, by suspending the majority of those taxes for 90 days following a sharp decline in US state bonds. Treasuries, also known as Treasuries, have long been regarded as a secure funding. However, trust in the property has been shattered by the business war.

Trump has since suggested that trade hostilities with China may be easing, claiming that there will be significant reductions in tariffs on Chinese products.

Therefore, as authorities claim, Beijing now realizes that Trump may be spooked by the bond market.

US federal bonds totaling$ 700 billion are even held by China. The sole non-US alliance to possess more than that is Japan, a steadfast supporter of the United States.

Some claim that this gives Beijing more influence: Chinese media has frequently criticized the practice of selling or withholding payments of US bonds as a “weapon.”

However, researchers caution against assuming that China will not be completely destroyed by this circumstance.

Instead, it may cause significant losses for Beijing’s assets in the bond market and destabilize the Taiwanese yuan.

China will only be allowed to “only exercise stress” on US government bonds, according to Dr. Zhang. ” China has a bargaining chip, hardly a fiscal tool,” he said.

Nevertheless, China has a nearly monopoly over what it can weaponize: the extraction and refinement of rare earths, a range of components crucial to innovative tech manufacturing.

China has a lot of these in its tidal deposits, including Yttrium, which provides heat-resistant surface for jet engines, and dysprosium, which is used in magnet in electric cars and wind turbines.

Beijing has previously reacted to Trump’s most recent taxes by limiting exports of some of the rare earths needed for the production of AI cards.

According to estimates from the International Energy Agency ( IEA ), China accounts for about 61 % of rare earths ‘ production and 92 % of their refining.

While Australia, Japan, and Vietnam have begun to mine unique planets, it will take decades before China may leave the supply chain.

China prohibited the trade of another important material, antimony, in 2024, which is essential to various manufacturing processes. In response to a wave of panic buying and a search for alternative suppliers, its value more than doubled.

The rare earths market, which is feared, could experience the same kind of disruption, seriously affecting everything from defense to electric cars.

According to Thomas Kruemmer, chairman of Ginger International Trade and Investment, “everything you can move on or off good works on unusual rocks.”

” The effect will be significant for the US defense business.”