Chinese Poker

June 12, 2025

It turns out that China had “cards” to play in the trade war launched by Donald Trump. Talks between the two countries have resulted in a truce for now. Russia was not at the table but lurked in the background as the world’s two superpowers engaged in economic horse trading at the highest level imaginable and maneuvered for global influence. Trump upended the international trading system and imposed ruinous tariffs on every country, most punitively on China. Markets roiled, and retaliatory levies followed, but in early April, China played its ultimate card by halting shipments of critical minerals such as rare earths needed for cars, robots, wind turbines, jet fighters, and other technologies. In May, the United States responded by tightening restrictions on semiconductor and aviation exports to China, then threatened to revoke 277,000 US visas granted to Chinese students. However, Beijing’s stranglehold on the world’s supply of rare earths, which is critical to U.S. manufacturing, caused Trump to back down. The Financial Times summed up the contest succinctly: “Beijing’s success in snarling supply chains with rare earths has shifted the balance of power in trade talks.”

South China Morning Post

Markets remain skeptical that the truce will last. “We’ve heard positive spin before, so we will wait to hear whether both sides say the same thing before any sort of victory can be declared,” wrote The New York Times. Tariffs remain on both sides, but China cannot be pushed around. Notably, China’s manufacturing sector is more significant than America, Germany, and Japan combined, and Xi, like Putin, isn’t frightened of Trump. But resilience comes at a cost. America has further damaged China’s economy, which reels from debts, a real estate and middle-class meltdown, as well as increasing attacks on its collaboration and support for Russia. But Beijing profits from buying cheap Russian oil and supplying the Kremlin with weapons and technology, which it denies. However, no one is fooled, and America has another card to play: the newly proposed bill by Senator Lindsey Graham in Congress, which would impose 500% tariffs on China and other countries that buy Russian oil.

There is another major player involved in the trade turmoil. The European Union (EU) – the world’s third economic superpower -- also plays its cards astutely. Trump and the EU are embroiled in a bilateral tariff war, but both are also at odds with China and Russia. Still, the continent is about to become Trump’s biggest export market as it militarizes against the Russia threat by purchasing hundreds of billions of dollars worth of US weapons and expertise. The Euros are also disturbed that China financially and technologically feeds Russia’s war machine, which aims to eventually destroy their countries, too. So, they gradually closed the door on Beijing’s investment plans, put others on hold, and diversified their supply chains to avoid dependence on China.

A tight lid has been kept on the US-China talks, but the desired outcomes and geopolitical endgames were and remain obvious. Trump dislikes China and targeted its “cheating” in 2018, during his first term. He has been a China-baiter ever since. Now, with sweeping “tariffs,” he’s taken on Beijing — and the entire world's trading system, or the so-called free trade, which has been anything but. For decades, the World Trade Organization has allowed countries like China and Russia to enter without complying with rules and then struggled to effectively regulate the flow of goods. Intellectual property theft and trafficking are as rampant as are “non-tariff barriers,” fraud, illegal workarounds, and backdooring of illicit goods through third-party countries. The Biden administration was also frustrated and imposed strict controls on China regarding AI technology and semiconductor chips.

The Big Three

China battened down its hatches for a lengthy trade battle with Trump, but the White House could not take a hard line because it wrestles with domestic opposition. Trump has already relaxed some of the restrictions on AI and chips, mostly due to lobbying from Silicon Valley and Nvidia’s chief executive, Jensen Huang. However, the trade war has led to inflation, high consumer prices, supply shortages, and losses for American retailers. A compromise eluded for weeks, and the delay was also due to Trump’s miscalculation. He expected the Chinese to push for a solution, but they didn’t.

Trump had to initiate the first call with President Xi Jinping, and the Chinese stipulated that Ukraine and Iran could not be discussed, only trade. The Wall Street Journal reported that the Chinese readout of the conversation stated that Xi cautioned Trump about Taiwan and warned him to handle the issue cautiously. Beijing then granted export licenses for rare earths to three automakers, and markets jumped. Even so, on June 9, Trump’s defense secretary, Peter Hegseth, strangely repeated that China’s threat to Taiwan was “real” and “imminent.”

Geopolitically, China has played its cards effectively. Its Belt and Road Initiative has won allies around the world; its role as mediator in conflicts has been well-received; its inroads with Saudi Arabia have been valuable; and it has become the most significant contributor – along with India – in providing troops for United Nations operations. This has somewhat burnished its reputation, and the country is also catching up to the United States in terms of technology and innovation. It is governed by a technocracy that invests billions in education and research. This year, it paid off when a small Chinese start-up created an AI language model at a fraction of the cost that American companies spend. It was a “Sputnik moment” that also demonstrated how US chips and AI controls could be easily circumvented.

Aside from trade with the West, Beijing’s relationship with Russia remains its most significant challenge. The two have fought wars in the past, and each has harbored ambitions to conquer portions of the other. Putin cannot be trusted, and it is becoming clear that he is unlikely to win his battle against Europe. That’s why a recent Russian report from Ukraine shed new light on their relationship and China’s strategy. It revealed that Chinese spies are surreptitiously gathering information about Russia’s military, weaponry, and strategy during the Ukraine war. Why? China thinks several moves ahead and realizes that it will either face a victorious, defeated, or destabilized Russia one day. It means Beijing will have to fend off another war of conquest by Russia on its northern border, protect itself from a crumbling Russian empire, or be able to reoccupy Manchuria and portions of the Arctic from a defeated and weakened Russia. Whatever the scenario, the Chinese will be prepared.

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