How China Is Weathering the Trade War With Trump

The trade war this year between China and the United States started with a bang, a fast-and-furious escalation of tariffs to astronomical levels. In the ensuing months, both countries showed a willingness to pull back and not shut down trade between the world’s largest economies.

But they have made little discernible progress in resolving their differences on trade. On Monday, after a fourth round of talks, U.S. Treasury Secretary Scott Bessent said that the two sides would talk about trade again in about a month.

While other countries have scrambled to meet President Trump’s demands to strike deals for reduced tariffs, China has kept to its own timetable. The trade impasse with the United States has exacted a price — mainly from a sharp drop-off in exports to America. Here is how Beijing is trying to weather the standoff while doing what it can to avoid blinking first.

China’s exports to the U.S. plunge, but surge everywhere else.

China’s exports to the United States are down about 15 percent so far this year. But that has not slowed its export machine.

The country’s trade surplus with the world came within a whisker of $1 trillion last year, as its exports exceeded its imports on a scale seldom seen except around the time of the two world wars. Despite U.S. tariffs, this year’s surplus for China is on track to be even bigger.

This year, through August, China’s trade surplus widened to $785.8 billion from $612.6 billion a year ago. Its surplus with countries across Southeast Asia, Africa, Latin America and Europe has climbed rapidly. China’s electric vehicle brands are storming new markets in Europe and Southeast Asia, while sales of heavily discounted Chinese solar panels are booming in Africa.

Some of the excess that China exports to other countries winds up in the United States, although the Trump administration is vowing to crack down on that trade.

China has managed to avert the steepest tariffs threatened by President Trump — up to 145 percent at one point. But goods from China’s manufacturers are still subject to a minimum tax of 30 percent in addition to other duties, pushing the actual rate on many Chinese imports significantly higher.

For China, its strategy was years in the making. It has invested in building infrastructure across the developing world for over a decade. The money has helped China establish economic ties and exert influence in regions that are now becoming increasingly crucial as it seeks to redirect trade from the United States to the rest of the world.

By continuing to sell more goods overseas, China has been able to keep its economy growing. That is attributable not just to the exports themselves, but sizable investments in new factories to manufacture goods to sell abroad.

China tries to keep a lid on its economic weakness at home.

China’s export surge is masking weakness in other parts of its economy. A persistent real estate downturn has wrecked havoc on the economy. Consumers are spending less, while joblessness among young people remains a major problem. China is also dealing with a stubborn deflationary spiral, spurred by overproduction in key industries and price wars. Policymakers have taken steps to shore up its domestic economy, but so far results are mixed.

While that might ratchet up the pressure to cave to U.S. demands, China’s ability to tightly control the media and the internet has allowed it to prevent unfettered conversation about the toll inflicted by the trade war.

On Monday, China announced that retail spending and factory output in August fell short of economists’ expectations, in a sign that economic activity was slowing sharply. The sluggishness also suggests that Beijing’s efforts to stimulate the economy with low interest rates, easing home buying rules and subsidies for consumer products may not be enough if it wants to hit its annual economic growth target of 5 percent.

China finds points of leverage.

In any negotiation, both parties need to understand what is at stake. For China, the United States remains the biggest and most prosperous consumer market. Its companies risk losing customers in America because of the tariffs.

But over the last few months, China has also made clear what the United States risks by playing hardball with Beijing. In April, shortly after Mr. Trump imposed heavy tariffs on China, China retaliated by suspending exports of rare earth metals and magnets to the United States.

The magnets are essential for assembling everything from cars and drones to manufacturing robots and missiles. China produces about 80 percent of the world’s rare earth magnets and refines almost 100 percent of the critical minerals that make the magnets more resistant to heat.

In June, China agreed to resume shipments of rare earths as part of trade negotiations, but some American companies continue to have trouble obtaining adequate supplies. European manufacturers have also had trouble securing enough rare earth magnets as Beijing has pressed for the European Union to abandon tariffs on electric cars from China. Beijing’s message has been delivered: China has significant leverage, too, and is not afraid to use it.