A commerce conflict between the world’s two largest economies is now in full swing.

Chinese language exports to the US withstand 245% tariffs, and Beijing has hit again with a 125% levy on American imports. Shoppers, companies and markets are braced for extra uncertainty as fears of a worldwide recession have heightened.

Chinese language President Xi Jinping’s authorities has repeatedly mentioned it’s open to dialogue, however warned that, if vital, it might “combat to the tip”.

Here is a have a look at what Beijing has in its arsenal to counter US President Donald Trump’s tariffs.

China is the world’s second-largest financial system, which implies it will possibly soak up the impacts of the tariffs higher than different smaller international locations.

With greater than a billion individuals, it additionally has an enormous home market that would take a number of the stress off exporters who’re reeling from tariffs.

Beijing continues to be fumbling with the keys as a result of Chinese people are not spending enough. However with a variety of incentives, from subsidies for family home equipment to “silver trains” for travelling retirees, that would change.

And Trump’s tariffs have given the Chinese language Communist Get together an excellent stronger impetus to unlock the nation’s shopper potential.

The management could “very nicely be prepared to endure the ache to keep away from capitulating to what they consider is US aggression”, Mary Beautiful, a US-China commerce professional on the Peterson Institute in Washington DC, informed BBC Newshour earlier this month.

China additionally has a better threshold for ache as an authoritarian regime, as it’s far much less fearful about short-term public opinion. There isn’t any election across the nook that can choose its leaders.

Nonetheless, unrest is a priority, particularly as a result of there may be already discontent over an ongoing property disaster and job losses.

The financial uncertainty over tariffs is one more blow for younger individuals who have solely ever recognized a rising China.

The Get together has been interesting to nationalist sentiments to justify its retaliatory tariffs, with state media calling on individuals to “climate storms collectively”.

President Xi Jinping could also be fearful however, up to now, Beijing has struck a defiant and assured tone. One official assured the nation: “The sky won’t fall.”

China has at all times been often known as the world’s manufacturing facility – nevertheless it has been pouring billions into turning into a much more superior one.

Below Xi, it has been in a race with the US for tech dominance.

It has invested closely in homegrown tech, from renewables to chips to AI.

Examples embrace the chatbot DeepSeek, which was celebrated as a formidable rival to ChatGPT, and BYD, which beat Tesla final yr to turn into the world’s largest electrical car (EV) maker. Apple has been dropping its prized market share to native rivals corresponding to Huawei and Vivo.

Just lately Beijing introduced plans to spend greater than $1tn over the following decade to assist innovation in AI.

US firms have tried to maneuver their provide chains away from China, however they’ve struggled to search out the identical scale of infrastructure and expert labour elsewhere.

Chinese language producers at each stage of the provision chain have given the nation a decades-long benefit that can take time to copy.

That unrivalled provide chain experience and authorities assist have made China a formidable foe on this commerce conflict – in some methods, Beijing has been getting ready for this since Trump’s earlier time period.

Ever since Trump tariffs hit Chinese language photo voltaic panels again in 2018, Beijing sped up its plans for a future past a US-led world order.

It has pumped billions right into a contentious trade and infrastructure programme, higher often known as the Belt and Highway initiative, to shore up ties with the so-called International South.

The growth of commerce with South East Asia, Latin America and Africa comes as China tries to wean itself off the US.

American farmers as soon as equipped 40% of China’s soybean imports – that determine now hovers at 20%. After the final commerce conflict, Beijing ramped up soy cultivation at residence and acquired file volumes of the crop from Brazil, which is now its largest soybean provider.

“The tactic kills two birds with one stone. It deprives America’s farm belt of a as soon as‑captive market and burnishes China’s meals safety credentials,” says Marina Yue Zhang, affiliate professor on the College of Know-how Sydney’s Australia-China Relations Institute.

The US is now not China’s largest export market: that spot now belongs to South East Asia. In reality China was the most important buying and selling accomplice for 60 international locations in 2023 – almost twice as many because the US. The world’s largest exporter, it made a file surplus of $1tn on the finish of 2024.

That does not imply the US, the world’s largest financial system, isn’t a vital buying and selling accomplice for China. However it does imply it is not going to be straightforward for Washington to again China right into a nook.

Following stories that the White Home will use bilateral commerce negotiations to isolate China, Beijing has warned international locations in opposition to “reaching a deal at the expense of China’s interests”.

That might be an impossible choice for a lot of the world

“We won’t select, and we are going to by no means select [between China and the US],” Malaysia’s commerce minister Tengku Zafrul Aziz informed the BBC final week.

Trump held agency as shares plummeted following his sweeping tariffs announcement in early April, likening his staggering levies to “medication”.

However he made a U-turn, pausing most of these tariffs for 90 days after a pointy sell-off in US authorities bonds. Also referred to as Treasuries, these have lengthy been seen as a protected funding. However the commerce conflict has shaken confidence within the belongings.

Trump has since hinted at a de-escalation in commerce tensions with China, saying that the tariffs on Chinese language items will “come down considerably, nevertheless it will not be zero”.

So, consultants level out, Beijing now is aware of that the bond market can rattle Trump.

China additionally holds $700bn in US authorities bonds. Japan, a staunch American ally, is the one non-US holder to personal greater than that.

Some argue that this offers Beijing leverage: Chinese language media has repeatedly floated the concept of promoting or withholding purchases of US bonds as a “weapon”.

However consultants warn that China won’t emerge unscathed from such a state of affairs.

Moderately, it’s going to result in large losses for Beijing’s investments within the bond market and destabilise the Chinese language yuan.

China will solely have the ability to exert stress with US authorities bonds “solely up to a degree”, Dr Zhang says. “China holds a bargaining chip, not a monetary weapon.”

What China can weaponise, nonetheless, is its close to monopoly in extracting and refining uncommon earths, a variety of components necessary to superior tech manufacturing.

China has large deposits of those, corresponding to dysprosium, which is utilized in magnets in electrical automobiles and wind generators, and Yttrium, which supplies heat-resistant coating for jet engines.

Beijing has already responded to Trump’s newest tariffs by limiting exports of seven uncommon earths, together with some which might be important for making AI chips.

China accounts for about 61% of uncommon earths manufacturing and 92% of their refining, in keeping with estimates by the Worldwide Vitality Company (IEA).

Whereas Australia, Japan and Vietnam have begun mining for uncommon earths, it’s going to take years earlier than China could be minimize out of the provision chain.

In 2024, China banned the export of one other important mineral, antimony, that’s essential to varied manufacturing processes. Its value greater than doubled amid a wave of panic shopping for and a seek for different suppliers.

The worry is that the identical can occur to the uncommon earths market, which might severely disrupt varied industries from electrical automobiles to defence.

“Every little thing you possibly can change on or off possible runs on uncommon earths,” Thomas Kruemmer, director of Ginger Worldwide Commerce and Funding, told the BBC beforehand.

“The affect on the US defence trade might be substantial.”