China Preparing to Deal with Trump 2.0

“The ability to prevent defeat is your responsibility, while the opportunities for victory depend upon the enemy.” - Six Secret Teachings, Jiang Ziya

As the world awaits another term of US President Donald Trump, the People’s Republic of China (PRC) is preparing for tumultuous bilateral relations. Analysts and policymakers in Beijing are strategizing to navigate anticipated economic pressures, geopolitical tensions, and unpredictable diplomatic manoeuvers. The elevation of the “Right to Development for Chinese People” to a redline in US-China relations stems largely from the trade war and technology sanctions of Trump’s first term. The other redlines as stated by President Xi are the Taiwan question, China’s path and political system, democracy, and human rights. Chinese experts largely foresee a continuity in Washington’s adversarial stance. However, compared to Trump’s first term, China is better positioned with strategic forewarning and strengthened economic resilience. Despite inward FDI figures dropping to a three-decade low, China’s focus on leveraging science and innovation to drive future economic growth through the development of “new productive forces” is beginning to yield results. Its tech ecosystem supported by robust government backing and a thriving venture capital environment, has reduced reliance on western capital. Inadvertently, hostile geopolitical environment for Chinese researchers has also prompted a significant exodus of talent back to China.

Despite the inflationary pressures faced by US domestic consumers, most Chinese experts have noted that Trump’s threat of leveraging tariffs as an economic policy tool will remain a central aspect of his bilateral approach, as seen during his first term. With the specter of 60 per cent tariffs on Chinese goods and the possible revoking of China’s Most Favored Nation (MFN) status by the US, the impact on China’s economy could be substantial. Tariffs could gnaw at PRC’ GDP growth rate that is being held at 5 per cent annually with gigantic effort. With already narrow corporate profit margins, China’s corporate debt-to-GDP ratio remains among the highest in the world, nearing 172 per cent by the first quarter of 2024. Interestingly, China’s exports-to-GDP ratio had peaked at 36 per cent in 2006 and dropped to around 18 per cent by 2019. But as private consumption remained deadbeat despite talk of ‘dual circulation,’ the ratio climbed back to about 20 percent in 2023. On November 25, President-elect Trump announced a 10 percent tariff on all Chinese imports, set to take effect on January 20, his first day in office. Since Nov 2024, Chinese cargo is already crowding US ports on both coasts. China has also accelerated its efforts to stockpile microchips from the US with monthly chip purchases consistently surpassing US$1 billion since June 2024. ^[1]

With an export-oriented business model, China’s high-tech industries—including electric vehicles, solar panels, and batteries—depend heavily on external markets for a significant portion of their revenue. Increasing technology restrictions and US sanctions, particularly in semiconductors, continue to pose challenges as China seeks greater technological independence. In recent years, China's dependencies have shifted from technology-intensive advanced economies to commodity-exporting nations, primarily in the Global South. By 2022, minerals, fuels, and agricultural products—including food—comprised nearly 75 percent of China’s dependencies by value, up from just 22 percent in 2001. ^[2] Since 2016, the EU’s dependencies have become more concentrated on China, while the US has diversified its dependencies to countries like Vietnam and Mexico, which have however themselves become increasingly reliant on imports from China. Notably, the US-led Indo-Pacific Economic Framework (IPEF) seeks to promote diversification and "de-risking" of supply chains to lessen dependence on China. But China remains the largest source of imports for all IPEF member countries and the top export destination for half of them. ^[3]

Despite the announcement of significant stimulus measures in 2024 (though direct cash stimulus remained limited), Beijing has reserved some capacity to adapt to future US trade policies. There are also indications of deliberate yuan devaluation to offset dollar pressures and support international trade. The internationalization of renminbi has picked up pace since 2010 and more so with Russia moving towards yuan denominated assets and exchanges since the start of its special military operation in Ukraine in Feb 2022. China's relationships with other major energy-producing countries have also become deep-rooted. While a transition to the petro-yuan has not yet materialized, one could argue that the foundations for such a shift have been laid with some initial energy-related payments being made in yuan. Although the total value of Chinese loans (especially under the BRI) has declined in dollar terms, the growing trend toward currency swap agreements suggests Beijing is content with allowing the renminbi to depreciate relative to the dollar. Concurrently, China is also working to deepen ties and build partnerships to reduce its dependency on the US trade surplus with its pivot toward the Global South. While these efforts may not eliminate China’s trade surplus with the US, they strengthen Beijing’s supply chain resilience and diplomatic foothold in emerging markets.

Europe remains a strategic priority for China due to its large trade surplus. But the backbone of the Chinese resilience strategy is Southeast Asia. In 2020, ASEAN overtook the EU to become China's largest trading partner. In 2021, China upgraded its ties with ASEAN to a Comprehensive Strategic Partnership for Peace, Security, Prosperity and Sustainable Development (a status enjoyed by only Russia till then). From the Pinglu Canal project to reduce shipping time between western China and ASEAN to upgrading the ASEAN–China Free Trade Area (ACFTA) in 2024, China has steadily sought to integrate deeper into ASEAN supply chains. The recent movement towards bilateral rapprochement with India can also be seen through Chinese desire to mitigate US pressure under Trump administration. While Beijing has directed companies to retain key technologies in the mainland, joint development has become the diplomatic buzzword as evident in the PRC’ official statement on Xi-Modi meeting in October 2024. How that shapes up, remains to be seen.

China has also stepped-up use of sanctions and lawfare to counter the US. New laws in China mandate broad cooperation with government security efforts, with a focus on securing data and strengthening civilian sectors for military objectives, particularly in maritime transportation. Legal measures also aim to bolster resilience and solidarity against foreign pressures, such as economic sanctions. In fact, the incoming Secretary of State, Marco Rubio faces travel ban to China. Its impact on bilateral diplomacy remains to be seen due to numerous possible intermediaries for high level engagement between the PRC and Trump. The PRC has also increasingly sanctioned US defence contractors owing to large US arms sales to Taiwan. Govini' public reports highlight an unusually large dependency of US military industrial complex on Chinese supply chains. Beijing has announced export bans on key materials like antimony, germanium, and gallium—essential for sectors including defence, green energy, and high-tech manufacturing. These moves highlight China’s leverage in global supply chains and its readiness to counter US restrictions. Beijing has also launched antitrust investigations into US firms like Nvidia, signalling its willingness to use regulatory measures as leverage in the broader economic standoff.

Beijing is also recalibrating its military strategy to reshape global strategic balances. Without seeking nuclear parity, China’s expanded nuclear arsenal aims to establish a more robust deterrence threshold vis-à-vis the United States. Taiwan remains a critical flashpoint. Taiwan's efforts to enhance its international engagement have led to more assertive reactions from the People’s Liberation Army (PLA). Beijing’s military activities, including large-scale naval drills, highlight its ambitions to establish control over the first island chain. Beyond Taiwan, China’s Coast Guard continues to assert its maritime claims in disputed regions like the South China Sea, frequently clashing with regional neighbors such as the Philippines.

However, there are also areas for potential bilateral collaboration with the US, including climate change, global health, and emerging technologies, but these depend on political willingness—a challenging prospect given current tensions. The Trump team’s public invitation to President Xi Jinping indicates an attempt to rekindle high-level dialogue. While PRC’s Vice President has in the past attended inauguration for other government heads, Beijing could opt to send a senior officials’ delegation such as under Vice Premier He Lifeng, in charge of party’s economic commission, to set the agenda and tone for the relationship. Opportunities for a first in-person Xi-Trump meeting may arise during the APEC Summit in 2025 (depending on Trump’s approach to economic policies) or get pushed to 2026 when the US holds the G20 presidency and China holds the APEC Chair.

The return of Donald Trump could exacerbate adversarial dynamics in US-China relations. Through economic tools, military strategies, and global partnerships, Beijing aims to counter the challenges of a renewed Trump administration. However, the success of these strategies depends on China’s ability to balance internal and external pressures while maintaining a long-term vision for its global ambitions. Towards that end, China has expedited a mix of military, economic, and diplomatic strategies to ensure strategic autonomy, making its decision-making less susceptible to US influence.

Endnotes

^[1] China races to stockpile US chips before Trump ramps up sanctions, https://www.scmp.com/economy/china-economy/article/3287571/china-races-stockpile-us-chips-trump-ramps-sanctions [3]
^[2] Growing asymmetry: Mapping the import dependencies in EU and US trade with China, https://merics.org/en/report/growing-asymmetry-mapping-import-dependencies-eu-and-us-trade-china# [4]
^[3] US-led effort to diversify Indo-Pacific supply chains away from China runs counter to trends, https://www.piie.com/blogs/realtime-economics/us-led-effort-diversify-indo-pacific-supply-chains-away-china-runs-counter [5]

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