Trump’s cards to play in China

When President Trump goes to Beijing later this week to meet with Xi Jinping, there will be fanfare, red carpets, much hand-shaking and photo opportunities, signed memoranda, and, very likely, some ‘deals’ on trade. The general view that any benefits from the meeting will be modest is well founded. While there have been alternating periods of stability and heightened tension in the Sino-US relationship, there is no expectation that the major structural issues that lie at the heart of this fundamentally adversarial entanglement will be resolved. Yet, dialogue and detente are not to be sneezed at nowadays, and it probably suits both Trump and Xi to take some time out to stabilise their relationship and attend to pressing domestic economic concerns.

Trump, whose approval rating is at his own all-time low, could lose the Congress in the looming November mid-term elections. Xi may be relishing China’s widest approval rating margin over the US in more than 20 years in a recent 132-country Pew survey, but China’s non-tech economy isn’t in great shape, and the country needs stability if its best laid and recent 15th Five Year Plan (2026-30) is to get off to a good start.

Trump is treading a well-worn path that, so far this year, has been taken by the leaders of Germany, Spain, the UK, South Korea, Finland, Ireland and Canada to Beijing, and last year, the leaders of Australia, France, New Zealand, Portugal, Serbia, Slovakia, Spain and the EU. While these nations’ leaders have gone to China, ostensibly to do their own commercial deals, and be seen to hedge their international relations in the face of trade and other tensions with Trump’s America, Trump is going for altogether different reasons.

He has had no joy in ending the war in Ukraine, and cannot wean China away from supporting Russia, but his most pressing geopolitical issue is to stand down the US military from its war footing in the Gulf, and get China to increase diplomatic pressure on Iran to end the war and reopen the Strait of Hormuz. The China-Iran Foreign Ministers’ meeting in Beijing last week suggests China is not averse to playing a role, and it is in China’s interests for the Middle East to quieten down – it has a lot of commerce and investment at stake in Saudi Arabia and the UAE – but, equally, it is unlikely to expend a lot of political capital to help alleviate its main adversary’s embarrassment or discomfort.

Trump also wants to do a trade deal. The 2025 tariff war, in which mutual tariffs at one point rose to over 135 per cent, has given way to a truce, rather than a rapprochement. Current layered tariffs – some American tariff authorities are still in dispute domestically or up against renewal – have fallen to 30-45 per cent. The pivotal issue was China’s decision to license or ban exports of rare earth metals and magnets, over which it holds a virtual processing monopoly – for now at least. A few million dollars’ worth of rare earth trade translates into hundreds of billions of dollars of interrupted production. Suspending the ban for a year last October, China now wants some predictability in its American trade, as much as Trump wants continued access to rare earths, and a flag-waving deal on agricultural goods and commodities, and Boeing aircraft that he can platform ahead of the November mid-term elections for Congress.

The US President is also keen for the two sides to announce a new ‘Board of Trade’, first aired by US Trade Representative, Jamieson Greer, after talks with Chinese officials in March. This would be a standing body that would manage bilateral trade purchases up to a designated amount, tariffs, disputes and other commercial terms. Institutionalising the commercial relationship, at least to a degree, would certainly be better than random and episodic tariff and related announcements.

China favours a parallel ‘Board of Investment’, which would oversee, and, it hopes, lower barriers to investment in the United States, where Congress holds sway through the Committee on Foreign Investment in the United States, and so this might not (yet, at least) fly.

What these arrangements and deals can’t and won’t do is to address a key faultline that runs through the Sino-US relationship, and indeed China’s relations with many other nations, too; namely the neo-mercantilist nature of Chinese trade and commercial practices, resulting last year in a record trade surplus of over $1 billion, or six per cent of GDP. This is about weak demand at home and policies of self-reliance that lead to the over-production and low-priced exports of things like heavily subsidised electric vehicles, steel, chemicals, aluminium, solar panels and batteries into global markets. This threatens firms and jobs in richer nations, and also industrialisation programmes and even traditional industries in many emerging markets – backed up, of course, by coercion and leverage.

For its part, China will want the US to commit to greater predictability in its trade policies, and look to the US to desist from further use of export controls affecting China, if not reversals of existing restraints, in particular as they affect advanced semiconductors, memory chips and chip-manufacturing equipment of growing reliance in AI. China is also said to want to keep cajoling the US into changing the language on Taiwan so that distrust of America there rises, and Beijing can register a symbolic victory if America agrees to ‘oppose independence’ rather than ‘not support independence’. China might also want to get the US into restricting arms sales.

While speculation is rife about how malleable Trump is, and about who has leverage over whom and over what, the best option is that he stands firm on both. While Taiwan is a matter of principle and directly related to the security interests of the US and several countries in Asia, the issue of technology policy is less clear cut because of strong business lobbying interests.

The summit is expected to address AI safety, in which both sides have shared interests. The US lead in AI is shortening. The more it does, the smaller the incentive for China to agree terms with the US. Again, the US would play its hand best by holding firm, and, if anything, strengthening AI-related export controls, looking to reach an agreement with China, but not quite yet. While Trump has made some odd decisions in this space, the US has nevertheless recently banned the purchase of ‘foreign’ – i.e. Chinese – drones, used national security reasons to ban testing labs located in China and Hong Kong from certifying electronics for the US market, and, in the wake of the conflict with Iran, added three Chinese satellite firms to a blacklist maintained by the Department of Commerce.

It is hard to think about this summit – or indeed any of the next three possible meetings between Trump and Xi, which will be the return visit to the US, and then the Shenzhen APEC and Miami G20 summits at the end of the year – without reference to China’s Five Year Plan, approved ritually by the National People’s Congress in March. The plan sets out the ‘modern industrial system’ that China seeks to create, which is really the use of industrial policy on steroids to build an industrial ecosystem from resources. It seeks to realise this ambition through various means, from controlling supply chains to industrial domination, especially in advanced and green technologies, and in AI, but also in both traditional and frontier industries like biotechnology, nuclear power, space exploration and penetration, the oceans, and unmanned and intelligent combat systems.

China’s pursuit of these objectives, featuring increasing self-reliance, asymmetric dependency relations in which China weans itself off foreign dependency but not the other way round, and a reliance on foreign demand may run into blockages. These could originate in its own domestic economy and especially fiscal and financial failings, and/or from a hostile external environment and pushback from overseas.

No one should underestimate though what lies at the heart of Chinese leaders’ intentions when they set foot in Beijing looking for Mark Carney’s new strategic partnership, or Pedro Sànchez’s new friendship. Trump, for all his volatility and fickleness, will at least harbour no such illusions.