The tough dilemma Trump 2.0 poses for Beijing

It will be harder for China to balance the needs of its faltering economy with its international relations priorities. But there may be opportunities with Trump the dealmaker.

Expert comment Published 16 January 2025 4 minute READ

Dr Yu Jie

Senior Research Fellow on China, Asia-Pacific Programme

The world anxiously awaits the inauguration of Donald Trump on 20 January and nowhere more than in China. Expectations from the Chinese strategic community about the path of US–China relations over the next four years range from tragically fatalistic to extremely optimistic. 

At one extreme, some commentators expect bilateral relations to head for a freefall. At the other, pundits argue that Trump the dealmaker could do deals with China on sensitive issues, including Taiwan. Neither outcome is likely. 

China’s efforts to manage the former property developer will seek to maintain a precarious balance aimed at saving its faltering economy and reversing the deterioration of relations with the US-led West while also strengthening ties with large parts of the non-Western world. This balance is critical to China’s economic future and global standing. But how far can it succeed?

Beijing’s dilemma

The ruling Communist Party has already decisively changed its tone in recent months in managing its economy by asking key economic planners to do what they can to expand domestic consumption. 

A string of policies including monetary easing, fiscal support to debt-laden local governments and consumer subsidies on everyday products has been introduced to stimulate the economy. However, many economists consider such measures have been too slow to boost much-needed consumer confidence.

Chinese policymakers believe accelerating technological progress and achieving self-reliance is the only way for China to withstand US efforts at strategic containment. 

But this would require all national resources to pivot toward highly strategic sectors, with little fiscal-policy space for tax relief and consumer stimulus. Beijing faces a dilemma between using resources to restore consumer confidence or to strengthen its technological prowess.

The impending trade war

Like the rest of the world, Beijing is preparing for another round of trade wars with the incoming Trump administration. China’s major trading partners and global investors are wondering how far China will go in retaliation. 

Beijing’s tactics will be different from what they were in Trump’s first term as its macro-economic situation is less conducive to more strident retaliations on all fronts. Its punitive measures are likely to target sectors such as critical minerals, where Beijing enjoys a clear global monopoly.  

Fighting two trade wars simultaneously would be a further blow to the Chinese economy. 

Yet, China needs to strike the right balance. Washington is equally capable of imposing extremely damaging export controls on high-tech industries, such as aviation engines and legacy chip manufacturing, or exploiting the exorbitant privilege of owning the international reserve currency, the US dollar. Chinese policymakers must also recognize unfavourable public opinion towards the US and will seek to avoid being perceived as weak by its people.

While a tariff war between the world’s two largest economies is most likely, Beijing is already deeply intertwined in several bitter trade disputes with the European Union, its second-largest trading partner and a close US ally. Fighting two trade wars simultaneously would be a further blow to the Chinese economy. 

But in many ways, Trump’s signature transactional approach to US leadership in international affairs could work in China’s favour geopolitically. China’s responses to Trump 2.0 at its core will be about portraying the country as a responsible and confident world power in stark contrast to a potentially erratic and inward-looking US under Trump.

China’s foreign policy shift

Some shifts are already evident with neighbours with which China has had difficult relations, namely India, Japan and South Korea. Both New Delhi and Tokyo, part of the Quadrilateral Security Dialogue led by the US, began tentatively late last year  to soften their tones and approaches towards China. With South Korea embroiled in political crisis, a new government in Seoul might deal with China very differently from the impeached President Yoon Suk Yeol.

It remains to be seen whether Beijing can tighten its belt while maintaining close relations with developing countries.

The Global South encompasses many countries that have taken a neutral stance toward the war in Ukraine, while offering strong support to Palestine amid the conflict in the Middle East. These countries tend to see the US-led West as hypocritical. Trump’s return has offered a further opportunity for Beijing to strengthen its ties with a swathe of Global South countries.

Yet, there is another balance Chinese policymakers must strike. In the past two decades, Beijing has poured over $400 billion into nonfinancial investments across the developing world. This spending spree must end, however, as it grapples with its own economic woes. It remains to be seen whether Beijing can tighten its belt while maintaining close relations with developing countries.

Is the Ukraine war an opportunity for China?

Trump’s frequent talk of withdrawing support for Ukraine causes nightmares for Europe. But it equally creates a chance for Trump and his Chinese counterpart Xi Jinping to jointly explore some options to end Russia’s invasion of Ukraine, even if such options are likely to be imperfect in the eyes of all parties.

The key aim of Beijing’s advocacy of an end to the war in Ukraine is to prevent a sustained, simultaneous deterioration of its ties with the US and Europe. Yet, its damage limitation efforts have not been convincing in Washington or in European capitals. 

All of China’s explanations have stoked a sense of deep mistrust between Beijing and the US-led alliances. Trump’s return might well provide an unexpected opportunity for China to re-assess all possibilities.

In the aftermath of trade war between the two nations in 2018, China’s social-media influencers dubbed Trump as ‘Chuan Jian Guo’ or ‘Trump the Nation Builder’ – a sarcastic term suggesting that his presidency would undermine US international influence and bolster China’s global standing.   

Looking ahead, Trump’s return will bring continuous drama back to US–China relations. Yet over the last eight years Beijing has endured a continuous containment strategy over the first Trump presidency and the Biden administration. It must continue to find the right balance in managing its troubled economy and international affairs.

That equilibrium is precarious. Beijing has no need to escalate a war of words in response to every post on Trump’s social-media accounts. Its interests would be better served by responding to the new president and his unusual cabinet with balance and deliberation that takes into account China’s own national challenges.