Trump's bold wager concerning China has yielded favorable results up to this point. However, Xi maintains his aces up his sleeve.
In the ongoing trade war between the United States and China, China holds several strategic advantages that have helped it weather the storm. These advantages include its control of rare-earth minerals, rapid advancements in artificial intelligence, and a diversified, consumption-led economy.
Control of Rare-Earth Minerals
China dominates the global supply chain for rare-earth elements, which are critical for manufacturing high-tech products such as smartphones, electric vehicles, military hardware, and advanced electronics. This leverage complicates U.S. efforts to impose trade restrictions, as the U.S. and other countries depend heavily on China for these strategic materials. China's control over rare-earth minerals acts as a significant bargaining chip, allowing it to mitigate the impact of tariffs and secure key supply chains.
AI Technology and Innovation
China has made rapid progress in artificial intelligence, supported by massive investments, a large pool of data, and state-driven tech initiatives. While the U.S. remains strong in AI, China’s focus on integrating AI into manufacturing, surveillance, telecommunications, and digital infrastructure provides it with competitive advantages in productivity and emerging tech sectors. This fosters technology-driven exports and domestic market growth, counterbalancing U.S. restrictions.
Economic and Trade Diversification
In response to U.S. tariffs, China accelerated its strategic shift to reduce dependency on the U.S. market by boosting domestic consumption and expanding trade partnerships elsewhere. Initiatives such as the Belt and Road enhance connectivity with ASEAN, the EU, Africa, and other regions. This diversification diminishes U.S. leverage by creating alternative markets and supply chains, helping China maintain export momentum despite tariffs.
Political and Nationalist Cohesion
The trade war has enabled China’s government to galvanize nationalist sentiment and political unity behind economic resilience policies, reinforcing domestic stability and support for strategic economic reforms in the face of external pressure.
In summary, China’s control of rare-earth minerals and robust AI ecosystem, combined with a diversified, consumption-led economy and strategic global partnerships, give it substantial advantages that mitigate the impact of U.S. tariffs and sustain its long-term economic ascendancy in the trade conflict.
Meanwhile, the trade war has also had some notable impacts on both economies. For instance, President Donald Trump's tariffs on Chinese goods have generated tens of billions of dollars in tariff revenue for the U.S. Treasury each month. However, China remains the world's biggest exporter of goods, and despite the tariffs, its exports grew at 5.9% in the first half of 2025, the same pace as the first six months of 2024.
On the domestic front, China's last quarter's gross domestic product showed a sharp rebound in growth, despite having warning signs. Some economists expect businesses to begin hiring again in the coming months. In the U.S., Trump's favorite indicator of success, the stock market, has been booming, and inflation has defied predictions of a surge after Trump put his tariffs in action.
Despite these developments, the date for a much-anticipated meeting between Xi Jinping, the Chinese leader, and Trump has yet to be set, with Xi Jinping slow-walking the meeting that Trump has long sought. The uncertainty surrounding this meeting adds another layer of complexity to the ongoing trade war.
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