Those officials who worked for the Trump administration in its first iteration from 2017 to 2021 are uniform in one thing—that China catches the President’s attention unlike few other international issues. “Put China on the agenda—even if it’s really a meeting about the EU—and it will get bumped up the diary from a month away to tomorrow,” said one at a meeting in London, late in 2024.
The first Trade War, where the US slapped 25% tariffs on a limited range of Chinese hi-tech goods up to a value of $50 billion in 2018 (a move quickly reciprocated by the Chinese government), resulted in a deal in 2020. That agreement committed China to buying $200 billion of American goods but left the more complex issues of technology, Intellectual Property, and services off the table.
The Biden administration tried to address these concerns by maintaining existing tariffs, and in the case of Electrical Vehicles (EVs) and solar cells, even increasing tariffs to 100% and 50%, respectively.
The net impact of both measures, as of 2025, is hard to quantify. During the first Trade War, US-China trade data showed an increase in bilateral trade flows. Having fallen by about $50 billion over the two years following 2018, by 2022, the trade levels rebounded to a record $700 billion before settling back to the 2019 levels. One fact remains clear: China’s surplus of two-thirds of total volume remains consistent despite changes in trade levels.
Since his second inauguration on January 20, Trump quickly returned to the issue of US-China trade and relations. The White House—on top of believing that China has moved a long way from being classified as a developing country—imposed a 10% tariff on goods from China on February 1, wrapping it up into a general move against what it described as the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl.”
China’s initial response was to impose its own raft of targeted measures. On February 4, it imposed tariffs on Liquid Natural Gas, announced an investigation into Google, and slapped taxes on agricultural goods.
One thing is clear. This time around, China is better prepared for Trump than it was in 2017. It knows to some extent his playbook, and has had time to think through what to do in response. One thing it will be contemplating the benefits of is the second Trump White House’s wholesale attack on its own traditional allies. This has already created a new diplomatic space for Beijing. While this broadly benefits China by isolating the US, one concern for Beijing is not so much what Trump is doing in destabilizing the US’s conventional world role, but the speed at which he is working on this.
What does China think this more transactional US leadership wants from it? Broadly, four things shape its strategic response. The first is a better trade deal, and that means more exports to China and more job creation back to the US. The second is better quality investment from China that creates jobs and shares technology more equitably in the US. Thirdly, the institutionalization of US dominance, with China acknowledging this status. Finally, a greater Chinese contribution to global public goods, particularly securing maritime trade routes, an area where China has benefited hugely from the US’s contribution while making very little effort in return. For a Trump administration obsessed with how other countries freeload off the US’s high defense spending, this is likely to be a huge, and contentious, issue going forward.
China can probably already sniff major opportunities. Let’s take the trade matter. One of the less understood anomalies of US-China trade is that while China imports raw materials from the US like soybeans, petroleum, and gas, it exports hi-tech goods like telecoms, computers, and batteries. China remains a manufacturing hub reliant on foreign technology (like Apple, for instance). Yet, in the last five years, the data suggests a major shift.
China’s National Bureau of Statistics showed R&D funding over $496 billion in 2024, an 8.3% increase from the previous year. Globally, according to the OECD, China contributed 27% of R&D investment globally in 2021, second to the US with 32%. Across the board, China is seeing returns on this investment showing. While the volume overall is still under the US, the overall returns are proportionally higher. As America’s research publication rate declined in 2022, between 2003 and 2022, China’s annual output of science and engineering articles grew ten times. Seven out of 10 of the world’s top 10 research institutions in natural and health sciences in 2023 were in China.
China’s intention to make good on its promise a few years back of a “dual circulation” model where it has less dependence on the technology is becoming a reality. The “DeepSeek shock” in January—where the emergence of a Chinese AI company wiped hundreds of billions off the value of US ones by showing how things could be done cheaper and easier—is a sign of things to come.
For the second strand of China’s response, we can look at the networks of alternative markets it has set up. These are outside the European and North American markets that mattered to it so much in the past. In 2024, China’s largest trading partnership was the Association of South East Asian Nations (ASEAN), ten countries in its neighborhood where it has almost $1 trillion in trade. China is the largest trading partner to 120 countries.
One can call this the “Huawei world.” While Huawei is blocked from 5G systems in the US, Australia, and Britain, the company dominates the market in China, Latin America, Africa, and the Middle East. It is in this world that China sees opportunity and an alternative to the former markets it once had. And it is in this world that it has been building better networks through various regional forums such as the Forum on China-Africa Cooperation, the Belt and Road Initiative, BRICS, the Asian Infrastructure and Investment Bank (AIIB), and the Shanghai Cooperation Organisation.
In terms of the third strand—policy response—China could consider devaluing the yuan to absorb some of the impact of the Trump tariffs. While there has been speculation about this, China has so far resisted. Its main concern remains the weakened state of its own economy, where the housing market remains weak, and growth anemic. This means that China would prefer a deal to avoid uncertainty. It will also watch the impact of Trump’s policies on America’s own economy. But one thing is certain: China has options. As the world’s second-largest economy, it can make a strong response. This will not be a conflict that the US can easily win, or win at all.
What China will resist is to allow America to present whatever the outcomes of the current turbulence are as an institutionalization of its global primacy; it will also resist attempts to make it a major security player. For the latter, while there are things that China might be interested in being involved with (a greater security role in its own region being the most obvious one), the idea of it being stretched and committed to issues in the Middle East or Central Asia is way less appealing. It also knows that politically, its appearance as a security actor will be a lightning rod to the many across the world anxious about its ambition and influence.
Things are happening fast, though. The approach of the Trump presidency may well end up creating issues and spaces that China has no choice but to get involved with, if only to protect its own interests. We may be closer to a world where it is China rather than the US that is seen as being a more predictable economic force and a more reliable diplomatic actor. And that is a possibility that no one would have foreseen a decade ago.
