With Donald Trump’s victory in the 2024 presidential election, the future of the U.S.-China trade relationship is poised for a period of renewed tension. Given his administration’s past approach, marked by tariff increases, export restrictions, and an “America First” policy that emphasized reducing dependency on Chinese goods, China has prepared extensively to mitigate the impact of a potential resurgence in trade conflicts. Here are some ways China is positioned to handle this evolving situation:
1. Self-Reliance and Domestic Economic Reforms:
- China’s “dual circulation” policy is now deeply embedded in its economic approach. This policy encourages the expansion of domestic demand while maintaining select international trade relationships, particularly with countries beyond the U.S.
- Made in China 2025: Launched in 2015, this initiative aims to upgrade China’s manufacturing capabilities and reduce reliance on foreign technology. It focuses on high-tech industries such as robotics, aerospace, and new energy vehicles.
China has been working to strengthen its supply chains by investing in domestic production and reducing reliance on foreign suppliers. This includes efforts to secure critical raw materials and components domestically.
2. Investment in Technology and Innovation:
- In July 2023, China’s National Natural Science Foundation, the primary government fund for basic research, revealed its intention to support 17 to 30 research projects focused on chiplet technology. These projects will cover various aspects, including design, manufacturing, and packaging. The foundation aims to allocate between $4 million and $6.5 million in research funding over the next four years.
- China has established a third state-backed fund, the Big Fund, totaling $47.5 billion, to further bolster its domestic semiconductor industry. This fund will be used to manage venture capital and support investment companies, focusing on chip manufacturing equipment.
- Over the past few years, China has accelerated its push for technological independence, investing in industries such as semiconductors, renewable energy, and artificial intelligence. Companies like Huawei and SMIC are working toward technology self-sufficiency, limiting the impact of U.S. restrictions on China’s tech sector.
- China Standards 2035:
- Initiated: 2018-2020
- Objective: Establish global standards in emerging technologies like 5G, AI, and IoT (Internet of Things) to assert influence over the future technology landscape.
- Impact: This initiative aligns Chinese tech products with international standards, aiming to make Chinese standards foundational worldwide, which would also support China’s Belt and Road Initiative (BRI) countries in adopting Chinese technology solutions.
By 2024, China aims to produce a significant share of its high-tech components domestically, part of a larger goal to achieve technological self-sufficiency by 2025.
3. Strengthening Trade with Non-U.S. Partners:
- Belt and Road Initiative (BRI): This ambitious infrastructure project connects China to Europe, Asia, Africa, and the Middle East, fostering economic cooperation and trade with countries along the routes.
- Regional Economic Partnerships: China is actively involved in regional economic integration initiatives like the Regional Comprehensive Economic Partnership (RCEP) and the Asia-Pacific Economic Cooperation (APEC), promoting trade liberalization and investment flows.
- Bilateral Trade Agreements: China has negotiated bilateral free trade agreements with various countries, including Chile, Australia, and South Korea, to reduce tariffs and facilitate trade.
- Investment in Emerging Markets: China has been investing in emerging markets, particularly in Africa, Latin America, and Southeast Asia, to strengthen economic ties and create new export markets.
- Engagement with Non-Traditional Partners: China has been actively engaging with non-traditional partners, such as countries in Central Asia and Eastern Europe, to expand its trade and investment network.
4. De-dollarisation:
- Though its share has declined from 85% in the 1970s to 58% by 2022, the US dollar still accounted for 59% of global foreign exchange reserves in early 2024. Alternatives like the euro and renminbi are emerging but far from challenging the dollar’s supremacy.
- BRICS members, including India and China, are exploring oil trade in local currencies to reduce dependence on the dollar. Expanded BRICS+ (including Saudi Arabia and UAE) could shift oil market dynamics.
- Many Belt and Road countries are already beginning to adopt the digital yuan in their trade transactions with China, contributing to a slow but steady shift away from dollar dependency.
5. Strategic Stockpiling and Resource Security:
- China has been amassing essential resources, such as aluminum, copper, cobalt, and oil, ostensibly to ensure steady supply lines in times of geopolitical tensions or conflict. Analysts like Gregory Wischer suggest this stockpiling could be a precursor to military action, citing historical parallels with pre-World War II resource strategies by Germany and Japan.
- Alongside minerals and oil, China has also been actively securing agricultural commodities, notably corn, soybeans, and barley, often sourced from diverse global suppliers. This move is part of a broader strategy to address China’s domestic food security vulnerabilities. However, its mixed purchasing behaviors, such as unexpectedly canceling U.S. wheat contracts, suggest China is leveraging its market influence while managing resource flows for economic advantage.
- Increasing Equipment Purchases: Chinese firms are ramping up purchases of foreign chipmaking equipment to counter potential sanctions.
- Example: Imports of semiconductor equipment rose by a third in 2024, reaching $24.12 billion.
- Notable purchases include lithography machines from the Netherlands, valued at $7 billion.
- Concerns over Taiwan and Military Preparedness: Some experts interpret this accumulation as possible groundwork for a Taiwan contingency. Key military resources, especially oil, are prioritized to ensure operational capacity for a potential conflict. The global stakes of any move on Taiwan are high, and observers worry that China’s growing reserves may reduce its vulnerability to foreign sanctions, potentially emboldening it to take more assertive actions.
6. China’s Global Initiatives: Strategic Objectives & Hidden Agenda
- New Initiatives: China launched the Global Development Initiative (GDI), Global Security Initiative (GSI), and Global Civilization Initiative (GCI) to reshape global governance under Xi Jinping.
- Shift from Western Influence: These initiatives aim to counter the Western-led global order, emphasizing China as a stable alternative amidst global challenges.
- GSI Focus: While the Global Security Initiative promotes state sovereignty, non-interference, and opposition to unilateral sanctions, critics argue that its principles are selectively applied, as seen in China’s actions in the South China Sea and Ladakh.
- GDI’s Economic Strategy: Through the Global Development Initiative, China seeks to influence global development agendas and counter initiatives like the G7’s “Build Back Better World.”
- GCI and Value Relativity: The Global Civilization Initiative discourages universal human rights and democracy, promoting “relativism” of values to favor authoritarianism.
Implications for the Future
With Trump back in office, his administration may renew and even intensify policies aimed at reducing the U.S. trade deficit with China. However, China’s preparation since 2018 indicates it is better positioned to handle an economic standoff. Through domestic reforms, a focus on technological independence, and strengthening alliances with non-U.S. partners, China has built a framework that is more resilient to trade war tactics.
Although U.S.-China trade tensions under a second Trump presidency could lead to global economic turbulence, China’s strategic moves may mitigate severe impacts, allowing it to continue advancing economically while facing external pressures.