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Trump’s High-Stakes Trade Gamble with China — and Xi’s Counterplay
President Donald Trump has placed a bold wager: that the United States can take one of the most hard-line trade positions in its history against China — the world’s second-largest economy — and still come out ahead.
While it’s uncertain whether this strategy will pay off in the long run, Trump has enjoyed a series of short-term wins. The U.S. stock market is hovering near record highs, economic growth bounced back in the second quarter, and inflation has so far resisted the spikes many analysts predicted when his aggressive tariffs went into effect.
But Chinese President Xi Jinping is hardly on the defensive. He, too, is enjoying his own streak of victories. On Monday, Trump eased restrictions on certain AI chips for China, allowing faster models to be sent after months of blocking them. Meanwhile, despite heavy U.S. tariffs, China has diversified its exports, finding new markets worldwide and maintaining a strong trade surplus.
Xi’s Strategic Advantages
Xi holds significant leverage in this economic standoff. China is still the world’s largest exporter and dominates the global supply of rare-earth minerals — essential materials used in electronics, defense systems, and advanced manufacturing. Controlling roughly 90% of global rare-earth processing, Beijing has been slow to approve shipments to U.S. companies, frustrating Washington.
Additionally, Xi has been in no rush to grant Trump a long-sought one-on-one meeting, keeping the prospect as a bargaining chip.
Trump’s Aggressive Tariff Moves
Since returning to the White House, Trump has doubled down on his tough-on-China approach, dramatically raising tariffs that began in his first term and continued under President Joe Biden. Starting his second term with a baseline 20% tariff on Chinese goods, he ramped them up to a staggering 145% in the spring, effectively choking much of the trade between the two nations.
A partial breakthrough came in May when negotiators lowered those tariffs to 30% — still historically high, but a relief for U.S. companies dependent on Chinese imports. In return, China agreed to purchase U.S. agricultural goods, including soybeans, and paused certain antitrust probes into major American corporations.
These concessions may not seem game-changing, but they’ve been accompanied by tens of billions of dollars in tariff revenue flowing into the U.S. Treasury each month. Inflation has only inched up from recent lows, GDP growth has rebounded, and the stock market — Trump’s favorite performance gauge — remains strong, buoyed by corporate earnings and hopes of an upcoming Federal Reserve interest rate cut.
Xi’s Countermoves
While Trump projects strength, Xi has used his country’s trade dominance and resource control to negotiate on his terms. One of China’s demands in exchange for more rare-earth exports has been looser U.S. restrictions on high-end technology, particularly AI microchips.
Initially, Trump refused. But in a notable shift, he allowed the export of Nvidia’s H20 chips — the same ones behind China’s groundbreaking Deepseek AI model — and signaled he might even permit a toned-down version of Nvidia’s top-tier Blackwell chips to be sold to China, despite earlier saying this was off-limits.
Meanwhile, China’s economy remains resilient. Exports grew 5.9% in the first half of 2025, matching last year’s pace, and the nation posted a record $586 billion trade surplus in that period. Beijing has expanded trade with partners in South America and Africa, further insulating itself from U.S. tariff pressure.
A Standoff with No Clear Winner — Yet
Both leaders have managed to claim short-term victories while avoiding outright economic collapse. Trump has showcased his toughness on China without triggering a deep U.S. recession, while Xi has maintained export growth, resource control, and political leverage.
With negotiations ongoing — and that elusive Trump-Xi meeting still hanging in the balance — the trade rivalry between Washington and Beijing is far from over. Each side is holding valuable cards, and the final outcome may hinge on which leader can outlast the other in this high-stakes game of economic chess.