How China Plays the Long Game Against Trump

China's President Xi Jinping often speaks of "changes not seen in a hundred years," which have been unexpectedly delivered by Donald Trump. Amid global instability, the U.S. is perceived as a force for unpredictability, providing China an opportunity to present itself as a stable global power. China benefits from the U.S. getting entangled in the Middle East and views Trump's challenges to the existing U.S.-dominated order as a chance to assert its influence. Trump's initial trade war prompted China to realize the dangers of dependence on the U.S. China's exports to the U.S. declined by about 20% last year, yet China achieved a record trade surplus of $1.2 trillion by diversifying its consumer base away from the U.S. The U.S.-China relationship is pivotal for the century, shaped by two leaders with contrasting approaches: Trump, who is brash and impulsive, versus Xi Jinping, who is guarded, methodical, and plays the long game. Chinese policymakers see Trump as transactional but unpredictable, noting that many of his threats, labeled as "Trump Always Chickens Out" (TACO) on social media, are not executed. Interestingly, Trump is popular on Chinese social media, with nicknames like "Chuan Jian Guo" (Trump, the Nation Builder), which implies he helps China become a superpower. Xi Jinping appears to be benefiting from this dynamic, as Western leaders increasingly visit Beijing seeking to build more sophisticated relationships and hedge against what they now view as an unreliable United States. China learned from Trump's first trade war, which caught them off guard despite a lavish welcome just months prior. Beijing's strategy in the second trade war reflects a mindset of continuous learning, as encapsulated by the saying, "Learning is like sailing upstream; pause, and you’re pushed back." China retaliated against U.S. tariffs, demonstrating its ability to play the trade game. While exports to the U.S. fell, China diversified, increasing exports to India, Southeast Asian countries, and the EU. Trade flows are just one aspect of China's strategy. China has imposed export controls on rare earth minerals and magnets, which are critical for various industries, from electronics to military hardware. These controls inflict pain on U.S. and global manufacturers, as China dominates the rare earth supply chain, mining over 60% and refining over 90% of the world's rare earths. China's advantages in this sector include low labor costs and lax environmental standards, leading other countries to abandon rare earth production. Despite its trade successes, China faces significant domestic economic challenges. Beijing's GDP growth target for the year, 4.5% to 5%, is the lowest since 1991. The economy suffers from overcapacity due to excessive borrowing by local governments, businesses, and real estate developers, leading to deflation. China's economic rise, once fueled by exports and investment, now relies heavily on exports, as fixed-asset investment declined for the first time on record last year. Chinese workers face pay cuts, job losses, and a shift towards the gig economy, lacking job security. China is also exporting its deflation overseas, complicating its relationships even as countries seek to engage with it to hedge against the U.S. China is keen to leverage its economic strength for political influence but avoids entanglement in military conflicts far from home, as seen with Venezuela and Iran. While China is a crucial economic lifeline for these countries, they are ultimately replaceable for China's broader economic interests. However, the Strait of Hormuz presents a significant vulnerability; its closure could threaten nearly half of China's oil imports, potentially leading to a global inflation crisis and recession. For now, China seems focused on fighting the trade war, where it holds more advantages. While the U.S. remains the world's biggest economy and military power, China is not yet its equal. For nations caught between these two superpowers, hedging is seen as the key strategy.