As trade tensions between China and the United States remain simmering under the surface of global diplomacy, Beijing retains several powerful tools it could employ should an all-out trade war break out again. While Washington often leads with tariffs and restrictions first, China retains significant leverage – here are five cards China could play as responses.
- Rare Earth Elements
China holds more than 70% of the global supply of rare earth elements — essential materials used in smartphones, electric vehicles and military equipment. A potential trade war would force them to restrict exports, which would disrupt U.S. tech and defense sectors significantly. - U.S. Treasury Holdings
China, as one of the major foreign holders of U.S. government debt, could theoretically destabilize financial markets by selling off its vast portfolio of U.S. Treasury bonds – though such an act would undoubtedly harm China’s own economy and provide powerful leverage during negotiations. This remains both symbolic and an effective bargaining chip.
American companies such as Apple, Tesla and Starbucks rely heavily on China as a market, with Apple specifically being affected. China could target these firms with tighter regulations or consumer boycotts due to past political disputes – this would directly impact U.S. corporate revenues and stock prices.
- Yuan Devaluation
Beijing can employ currency manipulation to mitigate the adverse impact of tariffs. A weaker yuan would make Chinese exports cheaper, diminishing U.S. tariff effectiveness while protecting China’s competitive edge in global markets. - Export Controls on Key Components
In response to U.S. bans against Chinese tech giants such as Huawei, Beijing may impose its own export restrictions for key manufacturing components and industrial equipment destined for countries like semiconductor or battery production where China holds considerable influence.
Though both nations recognize that an extended trade war could severely damage their economies, China’s ability to employ aggressive countermeasures ensures any aggressive moves from Washington will be met with equally powerful retaliatory responses from Beijing. Analysts suggest both sides might prefer maintaining an equilibrium over escalated conflict escalation but whatever outcome emerges Beijing doesn’t appear weak hand.