China’s Long Economic War |
For much of the past year, China’s response to trade tensions has continually surprised hawks in Washington. In December 2024, when the Biden administration imposed new export restrictions on advanced chips, Beijing immediately answered by banning exports of several metallic elements to the United States. In April 2025, after the Trump administration threatened huge tariffs on China, Beijing dug in, imposing strict export controls on seven rare-earth minerals vital to defense and clean energy manufacturing. In May, China stopped buying U.S. soybeans, the largest U.S. export to China by value. And in October, after the United States extended existing export restrictions on Chinese companies to all of their majority-owned subsidiaries, China added five more rare earths and a broad array of advanced processing technologies to its own export controls. These increasingly bold measures not only posed a major threat to U.S. and global supply chains but would also have significant domestic consequences. The message was unmistakable: China is prepared to absorb pain to put real pressure on the United States.
If the approach was bold, however, it was not reckless. By opting for calibrated retaliation, Beijing preserved negotiating space and kept off-ramps open. After U.S. President Donald Trump and Chinese leader Xi Jinping met in South Korea in late October, China agreed to postpone many of the restrictions. Yet calibration should not be mistaken for weakness. Alongside its announced moves, China has developed a potent arsenal of nontariff barriers and legal instruments that it can draw on when needed. Discarding the strategic restraint that had previously characterized its approach to the United States, China has shown it is ready to weaponize its supply chain dominance.
This tough stance has been reinforced by domestic political considerations. Chinese leaders and negotiators are determined not to relive the public backlash that followed the 2020 Phase One trade agreement between Beijing and the first Trump administration, which to many Chinese commentators seemed as lopsided against China as the treaties that Western colonial powers brokered with the Qing dynasty. For Xi, who has vowed to end China’s “century of humiliation,” another deal that appears to favor the United States is politically untenable, and his willingness to stand up to Washington has become a means of solidifying his position as the country’s paramount leader ushering in a “national rejuvenation.”
Yet Beijing’s approach cannot be reduced to retaliatory tactics or nationalism. China’s leaders have spent years preparing for Trump’s return and view the trade war as part of a much larger contest that is likely to last for decades. In the short term, Beijing’s priority is securing the concessions on advanced technology needed to accelerate semiconductor development in China and reduce reliance on imports. In the medium term, it aims to deepen technological capacity, diversify export markets, and capture a larger share of value-added exports in global supply chains to reduce U.S. leverage. In the long run, it intends to build an alternative global trading and financial architecture strong enough to strip the United States of its unilateral sanctioning power. Above all, China wants recognition that its core interests lie beyond even the threat of Western interference—that it has full freedom of action within its sphere of influence, including Taiwan and its regional periphery, and that it can engage economically with the world on terms no less favorable than those accorded to the United States or other great powers.
In essence, China is attempting a geopolitical feat without precedent. It seeks to obtain an equal place alongside the United States without triggering “the Thucydides trap’’—the tendency for rising and established hegemons to come to blows. Unlike earlier revisionist powers, China intends to complete its ascent through the steady accumulation of economic power and influence rather than through military conquest. To succeed, it must not merely draw even with the United States but surpass it in some areas, to the point that any U.S. refusal to acknowledge its superpower status appears absurd to the rest of the world.
As this protracted struggle unfolds, conventional side-by-side comparisons of economic data or military capability are unlikely to provide a clear indication of which side is ahead, which is slipping behind, and why. When success in one domain comes at the expense of another, the ultimate effect on national power or influence can be ambiguous. As history has shown, a country’s global influence also depends on less tangible qualities such as the values it projects, its reputation, and its ability to attract allies and partners. To come to a clearer overall assessment of China’s quest for power, it is useful to borrow from a discipline that thrives on uncertainty and tradeoffs. In credit finance, banks and lenders assess a business’s creditworthiness by applying a series of broad criteria commonly referred to as “the four Cs”: capacity, capital, character, and collateral. Translated into geopolitics, this framework offers a structured way to evaluate China’s continuing rise and its implications for the United States.
As Washington retreats from multilateralism and becomes more consumed by domestic polarization, Beijing will continue to exploit opportunities to advance its own geopolitical goals. On paper, it is well positioned to do so: it can mobilize resources at an immense scale, it dominates green energy supply chains, it commands the world’s largest standing army, and its artificial intelligence companies have shown they can keep abreast of their American counterparts. But the United States retains other forms of global influence and clout that will be hard for China to match. As a close examination of the four Cs suggests, the contest between Washington and Beijing will not only be determined by which country has the best AI models or the most ships. Hard-to-quantify dynamics are likely to be as important as raw empirical advantages and hard power. To prepare for this long struggle, then, the United States will need to better understand what China is seeking and how it stacks up against American power in different domains, and where Washington’s own policies are falling short.
China’s global power is founded on its immense population and resources, or what might be called its capacity. As long ago as the thirteenth century, Marco Polo marveled at the extent of China’s cities, wealth, and territory in The Travels of Marco Polo, whose original Italian title was Il Milione, or The Million. Today, that vastness has enabled China to mobilize resources for growth at a scale and speed that eclipse most competitors. In 1978, China was among the poorest countries, with a per capita GDP of about $157, less than one-60th that of the United States and less than one-tenth of Brazil’s. Now, it is the second-largest economy and exports more goods and services than any other nation on earth.
This unprecedented ascent has been built on the backs of China’s easily exploited migrant laborers, a subset of its workforce that grew from roughly 30 million in 1989 to nearly 300 million in 2024. These low-paid workers have fueled the country’s explosive growth, manning factories, operating ports, building infrastructure, and making China the industrial powerhouse of the world. Today, the Chinese Communist Party is betting that the country’s huge army of engineers and scientists can do the same for technology and innovation. Already, China has nearly caught up to the United States in spending on research and development. Chinese researchers now publish more papers in elite scientific journals and file more patent applications than their American counterparts. Behind these figures lies a deep well of human talent: China produces roughly 3.6 million STEM graduates annually, over four times the U.S. total.
Yet this enormous capacity also poses one of China’s biggest challenges. It........