Trump’s China Strategy: A Risky Gambit Amidst Xi’s Strong Hand and Global Economic Shifts

In a bold strategic move, President Donald Trump aims to assert an unconventional stance against China, the world’s second-largest economy, with hopes of emerging victorious. The long-term success of this approach remains uncertain, but recent months have seen Trump achieve significant victories.

The stock market is hovering near record highs, the US economy has recovered in Q2, and inflation has defied predictions of a surge post tariff implementation. However, Chinese leader Xi Jinping is also enjoying a winning streak. On Monday, Trump hinted at potentially sending China advanced AI chips, a shift from previous blockades on mid-tier chips. Despite US tariffs, China has managed to find alternative markets for its goods, maintaining its status as the world’s leading exporter.

Xi holds several strategic advantages. China controls nearly the entire supply of critical rare-earth minerals essential for manufacturing electronics and defense equipment. These minerals are crucial to America’s national security and whose export Beijing has been gradually releasing, causing concern among US officials.

Moreover, Xi has delayed granting Trump a long-sought one-on-one meeting. In 2021, Trump has adopted a hardline stance against China, escalating tariffs originally imposed during his first term and maintained by former President Joe Biden to unprecedented levels. He imposed tariffs on Chinese goods at a minimum of 20%, increasing them to 145% in spring and effectively halting trade with the US’s second-largest trading partner.

In May, negotiations between the two nations resulted in reducing America’s tariffs on Chinese goods imposed this year from 30% to a more tolerable level for US companies reliant on Chinese imports, although still significantly higher than historical rates. Over several months, Trump’s negotiators have secured concessions from China, including increased purchases of US soybeans and the halt of antitrust investigations against large American companies operating in China.

While these concessions may seem minor, they have allowed Trump to claim significant tariff revenue for the US Treasury each month due to the massive tariffs placed on China. Inflation has risen slightly from four-year lows reached earlier this year, and GDP growth rebounded sharply in Q2 despite warning signs. Job growth has slowed significantly but uncertainty about tariffs has lessened, leading some economists to predict increased hiring in the coming months.

The US stock market has been booming, largely ignoring tariffs in favor of robust earnings and potential interest rate cuts from the Federal Reserve in the near future. Trump’s favored indicator of success, the US economy, has managed to avoid a recession, at least in the short term, despite his aggressive stance against China.

Despite Trump’s tough rhetoric towards China, he has shown relative leniency compared to his approach towards US allies like the European Union and Brazil. This is due to Xi’s strong hand, particularly his control over rare-earth minerals critical for defense and industrial sectors. China processes 90% of global rare earths, and while the US has claimed concessions allowing preferential treatment for American businesses seeking these materials, complaints persist about slow permit issuance.

In exchange for more access to rare earths, China has demanded reductions in US export controls on critical goods, particularly advanced AI microchips. Despite initially barring their delivery to China, Trump recently softened his stance, allowing Nvidia’s H20 chips and even considering approval for shipments of its highest-end Blackwell chips, a concession previously deemed unacceptable by the White House.

China has also maintained favor with Trump through increased purchases of US goods, particularly soybeans, while managing to sell into new markets like South America and Africa, minimizing disruption to its businesses. China’s exports grew at 5.9% in the first half of 2025, matching the growth rate from the same period in 2024, according to ING. China’s trade surplus reached a record $586 billion in the first half.

Finally, Xi holds power over something that Trump values highly: a meeting. Although Trump claims Xi promised a meeting date has not yet been set, and China has yet to confirm. For now, Xi is patiently leveraging his country’s resources and export dominance against a president who has used tariffs as a tool to pressure foreign leaders.