What China can do to Counter Trump

A Comprehensive Strategy to Counter Trump’s Escalating Trade War

The trade war between the United States and China has reached a boiling point, with President Donald Trump’s recent imposition of a 10% tariff increase on Chinese imports, effective February 4, 2025, signaling a renewed aggressive stance. As of March 1, 2025, China’s response has been calculated yet restrained, reflecting a strategic approach to avoid self-inflicted economic wounds while countering US pressure. Beijing possesses a broad array of tools—some already deployed, others yet to be fully unleashed—that could reshape the global economic landscape. This article delves into China’s potential responses, including weakening the yuan, restricting critical mineral exports, targeting US companies, building international alliances, selling US Treasuries, and additional measures like technological innovation and domestic stimulus, offering a thorough analysis of their implications and feasibility.

Weakening the Yuan: A Double-Edged Sword

China could opt to devalue its currency, the yuan, to bolster the competitiveness of its exports against US tariffs. A weaker yuan lowers the price of Chinese goods abroad, effectively cushioning the blow of tariff hikes. During the 2018-2019 trade war, the yuan depreciated by 11.5% against the dollar, mitigating roughly two-thirds of the tariff impact. Today, with the exchange rate hovering between 7.25 and 7.28 CNY per USD as of early 2025, there’s room for further adjustment, with projections suggesting a potential slide to 8 CNY per USD by year-end if tensions escalate further.

However, this tactic carries significant risks. A depreciated yuan could inflate China’s already substantial trade surplus—$877 billion in 2024—provoking ire from trading partners like the European Union and Japan, who might impose their own tariffs. Additionally, it could trigger capital outflows, as investors flee a weakening currency, and deter foreign investment at a time when China’s economy is grappling with deflationary pressures. The real effective exchange rate, nearing a five-year low in January 2025, underscores this vulnerability. While effective as a short-term countermeasure, over-reliance on this strategy could destabilize China’s financial system, making it a risky gambit.

Restricting Critical Mineral Exports: Leveraging Resource Dominance

China’s control over critical minerals provides a potent weapon in this trade war. By restricting exports of materials like tungsten, gallium, germanium, and graphite—moves already initiated with expanded controls announced on February 4, 2025—Beijing can disrupt US supply chains vital to technology, defense, and renewable energy sectors. China dominates 60% of global production and 85% of processing capacity for these minerals, giving it unparalleled leverage. The recent addition of metals like tellurium and indium to the restricted list amplifies this threat, targeting industries reliant on advanced semiconductors and aerospace components.

This strategy’s strength lies in its immediacy—US firms would face higher costs and delays—but it’s not without drawbacks. Prolonged restrictions could push Western nations to accelerate diversification, seeking alternative suppliers in Australia or Canada, thus eroding China’s long-term market dominance. The July 2023 curbs on gallium and germanium already spurred such shifts, with US companies stockpiling reserves. While this approach sends a clear message, it risks transforming China from a reliable supplier into a geopolitical pariah, a trade-off Beijing must weigh carefully.

Targeting US Companies: Striking at Corporate Vulnerabilities

China has the legal framework to hit US companies where it hurts, using tools like the "unreliable entity list" and "anti-foreign sanctions law" to penalize firms perceived as threats to its interests. In February 2025, two US companies were added to this list, and an antitrust probe into Google was launched on the same day Trump’s tariffs took effect. Giants like Apple, Tesla, and Microsoft, which collectively earn tens of billions annually from China, are prime targets. Disrupting their operations could pressure these firms to lobby Washington for de-escalation, turning corporate America into an inadvertent ally.

Yet, this tactic invites retaliation. The US could easily counter by sanctioning Chinese firms like Huawei or ByteDance, escalating the conflict into a tit-for-tat spiral. Moreover, targeting US companies risks alienating the Chinese workforce employed by these firms—Tesla’s Shanghai Gigafactory alone supports thousands of jobs—and could spark consumer boycotts that spiral out of control. While this leverages China’s massive market, it demands precision to avoid backfiring, as economic interdependence cuts both ways.

Building Alliances: A Diplomatic Counterweight

China can mitigate US pressure by forging stronger ties with other nations, a strategy already in motion with overtures to Japan, India, and Southeast Asian countries. Proclaiming a "fresh start" with Japan and seeking detente with India reflect a deliberate effort to diversify trade partners and reduce reliance on the US, which absorbed over $500 billion in Chinese exports in 2024. By deepening economic ties with ASEAN nations—whose economies grew by 4.6% in 2024—China could secure alternative markets and technology sources, softening the tariff blow.

The upside is strategic: a coalition of aligned nations could counterbalance US influence, creating a multipolar trade order. However, many countries prefer to exploit US-China rivalry rather than commit fully to Beijing’s orbit. India, for instance, remains wary of China’s regional ambitions, while Japan balances its US alliance. This approach requires deft diplomacy and long-term investment, but its success hinges on China’s ability to present itself as a stable, cooperative partner—a challenging feat amid trade war volatility.

Selling US Treasuries: The Nuclear Option

Holding $759 billion in US Treasuries as of late 2024, China could unleash chaos by offloading these assets, driving up US bond yields and borrowing costs. This would weaken the dollar, ironically aiding US exporters, but could destabilize global financial markets. China has already trimmed its holdings by over a third since 2017, shifting some to custodians in Belgium, suggesting a gradual diversification rather than a sudden dump. A mass sell-off remains a theoretical threat, often dubbed the "nuclear option" for its catastrophic potential.

The reality, however, is less dramatic. Such a move would slash the value of China’s own reserves, undermining its financial stability at a time when its economy faces slowing growth—projected at 4.8% for 2025—and a property sector crisis. The US could also retaliate by freezing Chinese assets or imposing financial sanctions, making this a mutually assured destruction scenario. While it looms as a psychological weapon, its practical deployment seems improbable given the self-inflicted damage it would entail.

Boosting Technological Independence: A Long-Term Play

Beyond immediate retaliation, China could accelerate its push for technological self-sufficiency, reducing dependence on US innovation. Investments in domestic semiconductor production, artificial intelligence, and 5G infrastructure—already underway with initiatives like "Made in China 2025"—could insulate its economy from future tech bans. In 2024, China’s R&D spending reached $413 billion, or 2.55% of GDP, a figure set to rise as tensions mount. This strategy aims to turn a weakness—US chip restrictions—into a strength.

The challenge is time. Building a competitive tech ecosystem takes years, and current gaps in advanced chip manufacturing persist despite progress by firms like SMIC. US export controls tightened in late 2024 have slowed China’s access to cutting-edge equipment, forcing reliance on stockpiles and lower-tier tech. While this won’t counter tariffs directly, it’s a decisive move to shift the balance of power, signaling to the US that short-term pain won’t derail China’s long-term ascent.

Domestic Stimulus: Fortifying the Home Front

China could also turn inward, deploying aggressive fiscal and monetary stimulus to shield its economy from trade war fallout. With growth forecasts dipping below 5% for 2025, Beijing has room to act—its fiscal deficit stood at 3.8% of GDP in 2024, well below levels seen in Western economies. Cutting interest rates, currently at 3.1% for the one-year loan prime rate, or launching infrastructure projects could boost domestic demand, offsetting export losses. A $140 billion stimulus package in late 2024 showed early promise, lifting consumer confidence.

This approach isn’t without pitfalls. Overstimulus risks inflating China’s debt bubble, with local government debt already exceeding $13 trillion. Deflationary pressures—consumer prices fell 0.5% in January 2025—complicate monetary easing, as lower rates might not spur spending in a cautious populace. Still, fortifying the domestic economy could buy time, allowing China to weather external shocks while preparing other countermeasures.

A Strategic Blend is China’s Best Bet

China should deploy a balanced, multi-pronged strategy rather than leaning on any single response. Export controls on critical minerals offer immediate leverage, exploiting US vulnerabilities without irreparable self-harm. Pairing this with alliance-building—particularly with ASEAN and Europe—can diversify trade channels, diluting the tariff impact over time. Technological independence and domestic stimulus should anchor the long game, ensuring resilience against sustained US pressure. Weakening the yuan or selling Treasuries, while tempting, risks too much collateral damage—financial instability and global backlash—and should be avoided unless escalation becomes dire.

This stance is grounded in current trends: global supply chains are fragmenting, and economic nationalism is rising. China’s position as a manufacturing powerhouse gives it unique strengths, but its economic slowdown—growth slipped to 4.7% in Q4 2024—demands caution. A measured yet assertive response will outmaneuver Trump’s blunt-force tactics, positioning China as a steadfast player in a shifting world order. Overreacting with drastic measures would play into US hands, inviting retaliation that could cripple Beijing’s ambitions.

Navigating a Fractured Global Economy

China’s options in this trade war are as varied as they are consequential, from short-term jolts like mineral bans to structural shifts like tech autonomy. Each carries trade-offs, but the evidence points to a hybrid strategy as the most effective path. The global economy is fracturing—trade volumes between the US and China dropped 11% in 2024—and this conflict will accelerate that divide. Businesses face higher costs, consumers face pricier goods, and nations face a choice: align with one superpower or carve an independent path.

​For readers, the takeaway is clear: diversify now—whether it’s supply chains, investments, or markets. Companies should scout alternatives to Chinese minerals, investors should hedge against yuan volatility, and policymakers should brace for a prolonged economic standoff. China won’t back down, but neither will it self-destruct; its next moves will shape not just this trade war, but the global balance of power for decades. Act decisively, because the stakes are only getting higher.