China gains leverage in U.S.–China trade dispute

A trade standoff between the United States and China wrapped up last October with Beijing walking away in a stronger position, showing how the Asian giant continues to gain power in world trade. 

When former President Trump sat down with President Xi in South Korea, the two leaders struck a deal to put their trade fight on hold for a year.

China gains leverage in U.S.–China trade dispute

The agreement showed China can push back against economic pressure from Washington while keeping a tight grip on crucial manufacturing supplies. Beijing made it clear that American businesses could face limits on rare earth elements, materials that go into everything from smartphones to military gear.

Joerg Wuttke from DGA Group said the deal could help China boost its share of global manufacturing from around 30 percent up to 40 percent.

“They’re telling other countries, don’t mess with us, don’t compete with us, you can’t beat us,” Wuttke said.

Yet even as China talks up its industrial muscle, December trade numbers show the country heading for its first merchandise trade surplus above $1 trillion in 2025, problems are piling up at home.

A lasting downturn in the property sector has hurt local governments badly. The crisis has led to falling prices and smaller paychecks for workers.

Kristalina Georgieva, head of the International Monetary Fund, traveled to Beijing last December and told officials that China needs “more forceful measures to be implemented with greater urgency.” She pushed leaders to address the “imbalances” dragging down the economy, pointing out that such a big country cannot rely only on selling goods abroad.

“Boosting consumption would unlock . . . a more durable source of growth,” Georgieva said.

China’s supply chain dominance raises global exposure

China processes about 90 percent of the world’s rare-earth materials and dominates other key supply chains, including batteries for electric cars, drones, and the processing of lithium and cobalt, according to Eddie Fishman, author of Chokepoints. He noted that heavy American tariffs might hurt China but could trigger a downturn in the United States as well.

China also supplies as much as 80 percent of certain ingredients used to make medicines, leaving Western countries more exposed as Beijing moves ahead in new fields like electric vehicles.

Chinese leaders said the country wants foreign money coming into its market, as long as it supports “advanced manufacturing, modern services, high-tech industries and sectors related to energy conservation and carbon reduction.”

But a fresh report from the EU Chamber of Commerce in China found that “European companies in some strategic sectors are being pushed out, due to regulatory barriers or formidable competition that has benefited from China’s industrial policies.”

Europe stands as China’s largest export destination after Southeast Asia. Still, Beijing’s win in the trade dispute with Trump has made it less concerned about other business partners, according to sources close to the matter.

For Europe and other major trading countries, China’s growing trade imbalances are becoming what French President Emmanuel Macron described as “unbearable.”

China’s merchandise trade surplus with the European Union hit €305.8 billion last year, up from €297 billion in 2023 and below a record of €397 billion in 2022.

Beyond industrial policy and market barriers, China’s weakening currency adds another headache for trading partners. The renminbi fell about 8 percent against the euro in 2025, while its real effective exchange rate dropped 18 percent from a high point in March 2022.

Falling prices also mask a surge in how much China is actually shipping out, which has grown its slice of world markets. S&P Global Ratings figures show merchandise exports jumped 43 percent since the start of 2020, while imports rose just 15 percent.

Rhodium Group expects China’s real exchange rate to keep sliding over the next two to three years as Beijing does little to counter deflation.

China’s grip on rare earths – it handles 90 percent of global processing – extends across many other industries, including batteries for electric cars and drones and the processing of lithium and cobalt used in them, according to Eddie Fishman.

One of China’s biggest supply chain advantages from a Western viewpoint involves ingredients used to make medicines. In some types, Fishman says China controls 80 percent of the market.

As China climbs higher in manufacturing value and takes charge of future technologies like electric vehicles, America and other nations face growing risks, he noted.

Even with computer chips, while America holds a technology lead, China’s strong foothold in older chips became clear during the recent Nexperia conflict.

China’s trading partners in developing nations face extra risks from this kind of pressure, economists warn. Developing countries depend on Chinese parts for their factories, but might lose their industries due to cheap imports.

“Chinese mercantilism is at least as big a threat, if not much bigger, to the prospects of emerging countries as American tariffs are,” said George Magnus, research associate at Oxford University’s China Centre and former chief economist of UBS.

At a Beijing meeting, a government adviser noted China’s GDP deflator has stayed negative for a record 10 straight quarters. He suggested that spending more on public services could boost household demand, while Goldman Sachs’ Shan said fixing the property slump is critical to getting growth moving again.

Sign up to Bybit and start trading with $30,050 in welcome gifts