The global tariff war ignited by Donald Trump has drawn China’s strongest counter measures . Though China is a surplus economy and the US a deficit one, Beijing’s arsenal of strategic advantages—including diversified export markets, massive holdings of US Treasury bonds, control over critical minerals, and institutional resilience in crises—bolsters its ability to resist American coercion.
On April 15, the Financial Times (UK) analyzed that China’s leverage in the trade war stems from its ability to diversify import sources more easily than the US. Over 15% of China’s total exports flow to the US, yet economists note that China’s imports from America are concentrated in low-value-added agricultural products like soybeans, cotton, beef, and poultry. In contrast, US imports from China—such as electronics, machinery, and processed minerals—are harder to replace.
Marta Bengoa, Professor of International Economics at the City University of New York, stated that while mutual dependency remains high, the US is more vulnerable: “China can source agricultural goods elsewhere far more easily than the US can replace Chinese electronics and machinery.”
Julian Evans-Pritchard, Chief China Economist at Capital Economics, told the Financial Times that market reactions indicate greater pressure on Washington: “The US faces stronger incentives to return to negotiations.”
Since Trump’s first-term tariffs on steel, aluminum, solar panels, and washing machines (2018–2019), China has reduced reliance on US consumer exports. US government data shows China’s share of US imports fell from 21% in 2016 to 13.4% last year. Meanwhile, Chinese manufacturers have shifted production to Southeast Asian nations like Vietnam and Cambodia, leveraging cheaper labor and evading US tariffs. Exports to Vietnam surged 17% in March 2024.
Vietnam, now facing a 124 billion trade surplus with the US, risks a 46 percent “reciprocal tariff “, although it has been suspended for 90 days.
Alicia García Herrero, Chief Economist for Asia-Pacific at French investment bank Natixis and Senior Research Fellow at Bruegel, stated that the suspension “provides some breathing room,” but even if Chinese exports were strictly halted, it would not inflict catastrophic damage on China’s massive economy. Last year, China’s GDP grew by 5%, with 1.5 percentage points attributable to its nearly $1 trillion global trade surplus. “China is a large, resilient economy,” she emphasized.
Bloomberg (US) reported on April 14 that the US, as a consumption-driven economy, harms itself by taxing Chinese goods. Consumers—often overlooked but politically influential—could weaken Trump’s negotiating position. While deficit economies traditionally hold an edge in trade disputes, US reliance on “Made-in-China” goods which is often produced by US firms in China complicates this.
Tariff exemptions for smartphones, laptops, and memory chips highlight this interdependence. Apple, reliant on Chinese production, cannot withstand 145% tariffs.
The Financial Times noted that China’s vast US Treasury holdings—if sold—could destabilize markets, raise concerns about US asset appeal, and accelerate dollar depreciation, increasing import costs. Trump’s April 9 decision to suspend “reciprocal tariffs” for 90 days (retaining a 10% “baseline tariff”) may reflect fears of a Treasury selloff. Reuters reported surging US bond yields last week—the sharpest rise since COVID-19—as investors speculated that China and other reserve managers are reassessing their holdings.
China controls over two-thirds of global rare earth production and 90% of processing capacity—critical for electric vehicle batteries. Despite Trump’s exemptions for key minerals, supply chain risks persist. China’s recent export controls on seven heavy rare earths signal readiness to deploy “new economic weapons,” per analysts Evan Medeiros and Andrew Polk.
Bloomberg observed that Beijing’s calibrated countermeasures—combining tariff retaliation with principled negotiation—demonstrate resolve. On April 10, China’s Commerce Ministry spokesperson reiterated: “Talks are welcome, but only on equal terms. If the US chooses confrontation, China will respond in kind. Pressure and threats are not the way to deal with China.”
Deep Throat
** The blog article is the sole responsibility of the author and does not represent the position of our company. **
Former Google CEO Eric Schmidt recently sounded the alarm in The New York Times: China is not just catching up in artificial intelligence and technology innovation, it is, in some areas, pulling ahead. Despite US efforts to curb China’s progress through export controls on advanced AI chips, Schmidt argues these moves have only fuelled China’s determination to cultivate talent, build resilient supply chains, and accelerate homegrown innovation.
Schmidt points to a new era: “From DeepSeek to Temu to TikTok, Chinese tech is starting to pull ahead.” The era when China trailed far behind the US is over. American restrictions have, paradoxically, pushed China to double down, producing world-class products and, at times, even leapfrogging the West.
Google Former CEO Eric Schmidt argues in a commentary that China is rapidly catching up to the United States in artificial intelligence and technological innovation. (Image source: X)
A Changed Landscape: From Copycat to Contender
Schmidt’s commentary highlights how technological advances are transforming daily life in China. Electric vehicles speed through city streets; apps offer drone food delivery; and humanoid robots from Unitree Technology have become household names after performing on the Spring Festival Gala, China’s most-watched TV program. These shifts underscore China’s emergence as a peer-and sometimes a leader in fields like AI, robotics, and electric vehicles.
Humanoid robots from Unitree Technology became an overnight sensation after performing a dance and handkerchief-spinning routine on the stage of the Spring Festival Gala.
Schmidt notes, “To win the race for the future of technology, and, by extension, global leadership, the US must discard the belief that it is always ahead.” For years, China lagged behind. In 2007, when Steve Jobs unveiled the first iPhone, only about 10% of China’s population was online, and Alibaba was still years away from its New York IPO. But the pace of change has been staggering. In just over a decade, China has transformed from imitator to innovator, with products that sometimes outpace their Western counterparts.
AI: From Playing Catch-Up to Setting the Pace
When ChatGPT launched in late 2022, a wave of Chinese copycats followed, widely seen as years behind their American rivals. Yet, as with smartphones and EVs, Silicon Valley underestimated China’s capacity to rapidly develop affordable, state-of-the-art alternatives. Today, Chinese AI models are closing the gap. DeepSeek’s V3 large language model, updated in March, now ranks among the world’s best non-reasoning models on some benchmarks.
Schmidt observes, “In a dozen years, China has gone from a copycat nation to a juggernaut with world-class products that have at times leapfrogged those in the West.”
Manufacturing, Robots, and Open AI
Schmidt cites Xiaomi as a case in point: once dismissed as an iPhone copycat, the company delivered 135,000 electric vehicles last year. Meanwhile, Apple abandoned its own EV project after pouring in $10 billion over a decade. China is also racing to deploy robots at scale. In 2023, it installed more industrial robots than all other countries combined and has ambitious plans for mass-producing humanoids.
A key difference is openness. Leading US tech firms develop proprietary AI models and charge for access, partly because training these models costs hundreds of millions of dollars. Chinese AI companies, by contrast, often distribute their models freely for public use, download, and modification. This approach broadens their global influence and makes their technology more accessible to researchers and developers everywhere.
Schmidt’s New York Times op-ed headlined: “DeepSeek. Temu. TikTok. China Tech Is Starting to Pull Ahead.”
The Roots of China’s Tech Momentum
China’s rise is underpinned by decades of investment in STEM education, robust supply chains, and a brutally competitive domestic market that rewards relentless iteration. Apps from Chinese e-commerce giants like Shein and Temu, along with social platforms like RedNote and TikTok, are among the world’s most downloaded. Combined with the popularity of open-source Chinese AI models, it’s easy to envision a future where Chinese apps and AI companions are woven into the fabric of daily life worldwide.
Schmidt warns, “This China-dominated future is already arriving, unless we get our act together.” He urges the US to learn from China’s strengths: sharing more AI technology and research, accelerating innovation, and promoting AI adoption across the economy. He also cautions against underestimating China’s willingness to endure short-term economic pain for long-term technological supremacy.
Sanctions: Fuel for Innovation?
Despite US restrictions on advanced chip exports, China’s recent breakthroughs suggest that sanctions have only spurred local entrepreneurs to train and commercialize AI with renewed vigor. Schmidt concedes, “It’s a hard truth to swallow, but Chinese tech has become better despite constraints, as Chinese entrepreneurs have found creative ways to do more with less.”
The End of US Tech Dominance?
Schmidt closes with a stark warning: “We’re no longer in the era when China is far behind us.” If China’s ability to innovate holds, if its AI companies remain open, and if the country stays on track to claim 45% of global manufacturing by 2030, the next phase of the AI race will be a no-holds-barred contest across every front. America will need every advantage it can muster.
