As the economic confrontation between the United States and China escalates, Beijing is demonstrating its capacity to endure and counter sustained pressure.
With tariffs from both sides reaching historic highs—245% on Chinese exports to the US and 125% on American goods entering China—this trade war signals a deepening rupture between the world’s two largest economies. The following outlines five strategic advantages China holds as it navigates this geopolitical and economic struggle.
1. Domestic Resilience and Political Stability
China’s economic model and political structure afford it a unique resilience in times of prolonged conflict. As the world’s second-largest economy, China possesses a vast domestic market capable of absorbing external shocks. Despite current challenges such as low consumer confidence, youth unemployment, and a faltering property sector, Beijing retains policy tools to stimulate demand. These include subsidies for consumer goods and incentives to promote domestic travel and consumption.
Crucially, China’s authoritarian system insulates President Xi Jinping from short-term electoral pressures. Unlike US President Donald Trump, whose decisions are shaped by public opinion and impending elections, Xi can absorb economic pain for longer periods. This durability is seen as a strategic asset, with state media reinforcing nationalist sentiment to sustain public support. The government’s message remains defiant, asserting that the country will not yield under pressure.
2. Long-Term Investment in Strategic Industries
China has used the past decade to invest heavily in future-facing technologies. The state has channelled funding into sectors such as electric vehicles, artificial intelligence, semiconductors, and renewable energy. Firms like BYD have overtaken US competitors in global market share, while AI platforms such as DeepSeek are positioned as domestic alternatives to Western technologies.
Despite US efforts to reduce dependence on Chinese supply chains, many multinationals struggle to replicate China’s infrastructure and skilled labour base elsewhere. The maturity of its manufacturing ecosystem means China retains a critical role in global supply networks, making decoupling both complex and costly for US firms.
3. Diversified Trade Networks
Following earlier rounds of US tariffs under the Trump administration, Beijing has worked to reduce its reliance on American markets. It has deepened trade and investment ties with South East Asia, Latin America, and Africa through initiatives such as the Belt and Road programme. China is now the largest trading partner for 60 countries, compared to the US’s 30.
This reorientation has reshaped global commerce. US agricultural exports, particularly soybeans, have suffered as China turned to Brazil and invested in domestic cultivation. Meanwhile, South East Asia has overtaken the US as China’s top export destination. Beijing’s global outreach diminishes Washington’s leverage and complicates efforts to isolate China economically.
4. Financial Leverage in US Debt Markets
China remains one of the largest foreign holders of US government debt, with holdings valued at approximately $700 billion. While this is not considered a decisive weapon, it does offer Beijing limited leverage. Recent volatility in US Treasury markets, triggered by Washington’s tariff announcements, revealed a potential pressure point. Although a large-scale sell-off would damage China’s own investments and the value of the yuan, the psychological impact on markets could be significant.
Chinese state media have occasionally floated the idea of using US debt as a bargaining tool. However, analysts caution that the risks to China’s financial position mean this strategy can only be pursued to a limited extent. Rather than a “financial weapon”, US Treasuries provide Beijing with a bargaining chip in broader negotiations.
5. Control Over Rare Earths Supply
One of China’s most potent tools lies in its dominance of the rare earths market. These elements are critical to the production of semiconductors, electric vehicles, wind turbines, and military hardware. China controls over 60% of rare earths production and more than 90% of the refining capacity globally.
Beijing has already restricted exports of key rare earths in response to recent US tariffs. In 2024, it also banned exports of antimony, a crucial industrial mineral, leading to price surges and panic buying. Although countries such as Australia, Japan, and Vietnam are developing alternative sources, it will take years to challenge China’s current market position.
Given the dependence of various industries—particularly defence—on rare earths, any extended disruption would have far-reaching consequences for the US. As global demand for high-tech goods continues to rise, China’s command over these materials remains a formidable asset.
The escalating trade war between the United States and China reveals a complex power dynamic, in which neither side is easily compelled to retreat. China has prepared for such a confrontation through structural reforms, strategic investments, and global outreach.
While both economies stand to suffer in a prolonged conflict, Beijing’s five-pronged approach—from domestic fortitude and technological advancement to supply chain control and trade diversification—suggests it is well-positioned to withstand, and potentially shape, the trajectory of this geopolitical standoff.
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