Sun. Jun 8th, 2025
Xi Faces His True Challenge Beyond Trump’s Trade War

Listen to Laura read this article

Mention Donald Trump at China’s wholesale markets or trade fairs, and you’re likely to encounter a quiet laugh.

Despite sweeping US tariffs of 145%, Chinese traders largely remain undaunted by the prospect of economic pressure from Washington.

Instead, a wave of online Chinese nationalists have responded with a torrent of satirical memes—circulated via viral videos and reels—often featuring AI versions of President Trump, Vice-President JD Vance, and technology entrepreneur Elon Musk laboring on assembly lines, producing shoes and iPhones.

There is little sign that China is acting like a country bracing for economic hardship; President Xi Jinping has reiterated that Beijing will not yield to outside pressure.

“For more than 70 years, China has achieved its development through self-reliance and hard work… it has never depended on others’ generosity and stands unafraid of unjust suppression,” Xi said this month.

Xi’s confidence is underpinned by China’s reduced reliance on US exports compared to a decade ago. Nevertheless, the increased tariffs and brinkmanship from the Trump administration are highlighting economic vulnerabilities already present within China’s economy. The country is grappling with a property crisis, mounting job insecurity, and an aging demographic—all factors dampening consumer spending.

Since coming to power in 2012, Xi articulated a vision for a rejuvenated nation. That ambition is now being rigorously tested—not just by US trade actions, but by domestic structural challenges. As Trump’s tariffs take effect, the central question remains: will these measures further dim Xi’s economic vision, or can China transform these headwinds into opportunity?

China’s 1.4 billion-strong population should, in principle, provide a vast domestic market. However, pervasive caution persists: economic uncertainty has made many hesitant to spend.

This hesitancy stems less from the trade dispute and more from the collapse in the real estate market. Over the past five years, many have watched the value of their major asset — their homes — fall sharply.

Developers continued aggressive construction even as the property sector faltered. So great was the surge that, reportedly, all of China’s citizens would not fill the nation’s surplus of empty apartments.

He Keng, former deputy head of China’s statistics bureau, observed two years ago that the most “extreme estimate” puts vacant housing at enough for 3 billion people.

Across China, deserted complexes—vast skeletons of concrete high-rises—dot the landscape, earning the moniker “ghost cities”. Even in finished developments with tended gardens and curtained windows, darkness at night reveals the empty homes. Oversupply far exceeds demand.

Government intervention in restricting developers’ borrowing five years ago proved insufficient. House prices have declined, undermining Chinese consumer confidence. Analysts predict home values will fall by 2.5% this year, according to a February Reuters poll.

And real estate isn’t the sole concern for China’s middle class.

There are anxieties over provision of public pensions: in the next decade, around 300 million Chinese aged 50 to 60 are due to retire. A 2019 projection from the Chinese Academy of Social Sciences suggested the national pension fund could be depleted by 2035.

Concerns over employment for younger generations also loom large, as millions struggle to secure jobs. Official data released in August 2023 put the unemployment rate among urban Chinese aged 16 to 24 above 20%; no further figures have been published since.

Shifting from an export-driven model to domestic consumption is not a switch China can simply flip overnight.

“With downward economic pressure, significant short-term growth in domestic demand remains unlikely,” remarks Prof Nie Huihua of Renmin University.

“Transitioning from exports to internal consumption will require time.”

Fudan University’s Prof Zhao Minghao, deputy director of the Center for American Studies, notes: “China has modest hopes for negotiations with the Trump administration… The focus is on reforming domestic policy, such as spurring internal demand.”

To reinvigorate activity, authorities have unveiled billions in childcare grants, wage increases, and enhanced paid leave, as well as a $41bn package promoting discounts for consumer electronics and electric vehicles. Prof Zhang Jun, dean of economics at Fudan University, cautions the sustainability of these measures.

“We require a lasting solution,” he opines. “Residents’ disposable income must rise.”

Xi faces a pressing challenge: the aspiration for shared prosperity outlined at the start of his tenure has not fully materialised.

He is acutely aware of the increasing disenchantment among China’s youth regarding their future—a volatility that could pose deeper risks for Communist Party stability in the form of protests or unrest.

According to Freedom House’s China Dissent Monitor, financial dissatisfaction has fuelled a significant uptick in demonstrations in recent months.

Yet, most protests are swiftly managed and censored online, limiting their immediate challenge to Xi’s leadership.

“Only when the nation thrives do its people prosper,” Xi said in 2012.

That assertion was voiced during a period of rapid economic ascent for China; now, the country’s future feels less assured.

Yet, in sectors like electronics, batteries, electric vehicles, and artificial intelligence, China has made significant advances, redirecting priorities toward high-value manufacturing.

Beijing now competes fiercely with US firms, as seen with the rise of its DeepSeek chatbot and with BYD surpassing Tesla to become the world’s top EV producer last year.

However, Trump’s latest tariff measures could disrupt these achievements.

Targeted restrictions on critical semiconductors—including the latest US limits on exports from Nvidia—underline American efforts to blunt Xi’s ambitions in technology leadership.

Nevertheless, Xi is aware Chinese manufacturers retain a substantial advantage: few places can match China’s industrial scalability and skilled workforce, putting US companies at a disadvantage in relocating production.

Amid these changes, Xi frames the current challenge as an impetus for further reform and diversification in global markets.

“Some exporters will encounter marked impact in the short run,” Prof Zhang acknowledges. “But businesses are already adapting and seeking out new markets. Exporters remain resilient.”

Trump’s previous term prompted China to intensify outreach in Southeast Asia, Latin America, and Africa, leveraging the Belt and Road initiative to deepen ties with the Global South.

Today, China’s diversification pays off: over 145 nations conduct more trade with Beijing than with Washington, according to data from the Lowy Institute.

Back in 2001, just 30 countries prioritized trade with China over the US.

With the US administration targeting allies and adversaries alike, some observers argue Xi could leverage this moment to position China as a dependable and alternative global trading leader.

Xi’s first overseas trip after the latest tariff announcements took him to Southeast Asia—a nod to concerns among regional partners over US trade action.

Now, roughly a quarter of China’s exports are produced in or routed through other countries in the region, such as Vietnam and Cambodia.

Recent US measures may also offer Xi a chance to set a new global diplomatic tone for China.

“Trump’s coercive tariff strategy is a window for Chinese diplomacy,” says Prof Zhang.

However, caution is warranted. Some nations fear that goods meant for the US could flood their markets instead.

After Trump’s 2016 tariffs, an influx of Chinese products found their way to Southeast Asia, hurting local industries.

Prof Huihua warns, “Roughly 20% of China’s exports go to the US. Should they shift to regional markets, it could result in dumping and trigger trade tensions.”

There are limits to Xi’s ability to champion open trade worldwide.

In recent years, China has itself imposed trade restrictions on others.

In 2020, following Australia’s call for an independent COVID-19 inquiry, China responded with tariffs and bans impacting the country’s wine, barley, beef, timber, coal, cotton, and lobster exports, causing some sales to China to fall to virtually nothing.

Australia’s Defence Minister Richard Marles stated earlier this month that his country would not act as a broker for China amid rising US-China trade tensions.

Previous actions could complicate Xi’s global ambitions, with many countries reluctant to pick sides between Beijing and Washington.

For all the challenges ahead, Xi is wagering that Beijing can outlast Washington when it comes to bearing economic pressure in the contest for global influence.

There are early indications that the US is recalibrating; last week, President Trump suggested tariffs on Chinese imports could “come down substantially, but it won’t be zero.”

Meanwhile, Chinese social media quickly reacted.

“Trump has caved,” became a trending topic on Weibo after the US president signaled a less aggressive approach to tariffs.

Regardless of future negotiations, China is clearly taking the long view.

Past trade conflicts have already led China to diversify beyond US markets, particularly toward the Global South.

Today’s disputes prompt China to confront its internal challenges—and fixing them will require solutions devised in Beijing, not Washington.

Top picture credit: Getty Images

BBC InDepth is the online destination for in-depth analysis and original reporting, offering fresh perspectives on today’s most pressing issues. We also feature standout content from BBC Sounds and iPlayer. Share your feedback about the InDepth section using the button below.

The White House has long considered the agreement as a critical step toward additional security assistance.

Chinese exporters tell the BBC that if the American market closes, “other countries have the purchasing power” to fill the gap.

Mohsen Mahdawi was detained by authorities following his appearance at an American citizenship interview in mid-April.

Michigan Governor Gretchen Whitmer’s tentative interaction with Trump underscores the complexities of collaborating with his administration.

He previously asserted he lacked authority to retrieve Kilmar Ábrego García from El Salvador.

Xi Faces His True Challenge Beyond Trump’s Trade War

Listen to Laura read this article

Mentioning Donald Trump in China’s wholesale markets and trade fairs often elicits a wry smile.

The US president’s 145% tariffs have not struck fear among many Chinese businesspeople.

Rather, these measures have propelled a wave of satirical memes online, with viral videos and social media reels featuring AI-generated portrayals of Trump, Vice-President JD Vance and Elon Musk working on factory floors and electronics lines.

China shows little sign of behaving like a nation bracing for economic hardship, and President Xi Jinping has reiterated that Beijing will not yield.

“For over 70 years, China has advanced through self-reliance and perseverance… never depending on external largesse and unbowed by unwarranted pressure,” Xi stated recently.

His assuredness is partly due to China’s reduced dependence on US exports compared with a decade ago. Yet, Trump’s confrontational strategy and tariff increases expose pre-existing vulnerabilities within China’s economy: from a property crisis to rising job insecurity and demographic challenges, domestic consumption lags behind government targets.

Since taking office in 2012 with aspirations for national rejuvenation, Xi’s vision now faces major disruptions—not only from tariffs. The core question is whether Trump’s policies will derail Xi’s economic ambitions, or if China can transform current headwinds into opportunity.

With its 1.4 billion people, China’s domestic market should in theory offer immense potential. But ongoing uncertainty has dampened consumer spending.

This consumer hesitation is rooted less in the trade war, and more in a sharply declining property sector. Many families have seen the value of their life savings evaporate as home prices have steeply dropped over the past five years.

Even as the property market faltered, developers continued to build—resulting in a significant oversupply. Analysts estimate that China’s vacant apartments could house the entire population several times over.

He Keng, former deputy director of China’s statistics bureau, acknowledged two years ago the “extreme estimate” that enough unoccupied homes exist for 3 billion people.

Touring through China, one sees “ghost cities”—high-rise concrete shells or finished developments appearing inviting from the outside but remaining dark and empty at night, a testament to the shortage of buyers.

The government imposed borrowing limits on developers five years ago, but the impact on home values and consumer confidence had already taken root. Reuters polls in February forecast a further 2.5% drop in home prices this year.

Housing is not the only concern for middle-class Chinese families.

Many worry if the government can provide pension support: an estimated 300 million Chinese aged 50-60 are expected to retire in the coming decade, yet a 2019 report from the Chinese Academy of Social Sciences cautioned the government’s pension fund may be exhausted by 2035.

Millions of college graduates face daunting prospects finding jobs, with official figures from August 2023 showing urban youth unemployment above 20%. Youth unemployment data has not been updated since.

Shifting from exporting to the US to relying on domestic buyers is far from a quick fix.

“Given present economic pressures, expanding domestic consumption significantly in the short term remains unlikely,” comments Prof Nie Huihua of Renmin University.

“Transitioning from export dependency to domestic demand-led growth requires time.”

Prof Zhao Minghao, deputy director at Fudan University’s Center for American Studies, adds: “China holds low expectations for negotiations with the Trump administration… The central challenge lies in adjusting China’s own domestic policies, such as stimulating household spending.”

To energise economic growth, authorities have announced sizable childcare subsidies, higher wages, and enhanced paid leave, alongside a $41 billion initiative offering discounts on consumer electronics and electric vehicles. Still, Fudan University’s Dean of Economics, Prof Zhang Jun, sees this as unsustainable.

“A permanent solution is required,” he remarks. “We must focus on raising disposable household income.”

Delivering on this is pressing for Xi. The prosperity he once promised has yet to materialise for many.

Xi is also sensitive to the disappointment among Chinese youth about their future—posing risks of unrest that could challenge Communist Party stability.

Data from Freedom House’s China Dissent Monitor highlights a recent surge in protests over financial grievances.

While most demonstrations are swiftly curbed and scrubbed from social media, the underlying discontent could become more serious.

Back in 2012, Xi declared: “Only when the country does well and the nation does well can everyone do well.”

That conviction matched the era of apparently unstoppable economic growth. Today, the outlook is much less certain.

Nevertheless, China has made major advances in fields like electronics, batteries, EVs, and artificial intelligence—part of a strategic shift toward advanced manufacturing.

The nation now competes with the US in technological leadership, exemplified by the DeepSeek AI chatbot and BYD surpassing Tesla to become the globe’s largest EV manufacturer last year.

However, new tariffs from Washington risk undermining these gains.

Export controls on chips—including recent restrictions on Nvidia—target Beijing’s ambitions to lead in critical tech sectors.

Nevertheless, Xi recognises that China’s manufacturing base offers a significant long-term advantage, as US firms struggle to match the scale and skill available in China.

President Xi is also intent on leveraging the current tension as an impetus for reform and for opening new global markets.

“In the immediate term, some Chinese exporters will suffer,” Prof Zhang notes. “But these firms are proactively adjusting, seeking alternative destinations for their products.”

Trump’s earlier years in office prompted China to look beyond the US. Since then, Beijing has deepened relationships across Southeast Asia, Latin America, and Africa, using the Belt and Road Initiative to reinforce its links throughout the Global South.

China’s diversification is bearing fruit: research from the Lowy Institute confirms that over 145 nations now trade more with China than with the US.

By contrast, in 2001 only 30 countries considered China their primary trade partner over the US.

With Trump extending tariffs across both allies and rivals, some analysts suggest Xi may use this moment to challenge the US-led order and position China as a dependable global trade alternative.

Xi made Southeast Asia his destination of choice for his first international visit following the tariff announcement, recognising regional concerns about the impact of US tariffs.

A rising portion of Chinese exports—about 25%—are now produced or shipped via countries like Vietnam and Cambodia.

Recent US actions also bring an opportunity for Xi to redefine China’s role on the world stage.

“Trump’s forceful tariff regime opens new avenues for Chinese diplomacy,” says Prof Zhang.

Caution will be necessary, however. Some nations fear an influx of Chinese goods originally destined for the US could disrupt their own markets.

After Trump’s tariffs in 2016, a wave of surplus Chinese exports entered Southeast Asia affecting local industries.

Prof Huihua warns: “Roughly 20% of China’s exports go to the US—redirecting these goods into any single region could result in dumping and new trade tensions.”

China’s ability to present itself as the champion of free trade faces hurdles.

Beijing has itself introduced trade curbs in recent years.

After Australia called for a global investigation into the origins of Covid-19 in 2020, China imposed tariffs on wine and barley and banned certain imports—a response that led some Australian exports to China to collapse to nearly zero.

Recently, Australian Defence Minister Richard Marles stated that his country would not be “holding China’s hand” as the US ramps up its trade conflict with Beijing.

Beijing’s past use of trade as leverage may make other governments reluctant to take sides between Washington and Beijing.

Despite these obstacles, Xi is wagering that China can outlast any economic discomfort the US endures amid this great power rivalry.

In fact, it appears Trump may be reconsidering his stance, recently indicating existing tariffs could “come down substantially, but it won’t be zero”.

On Chinese social media, the reaction has been swift.

A trending topic on Weibo declared, “Trump has chickened out,” as users responded to news of potential tariff reductions.

Whatever the outcome of future negotiations, Beijing is preparing for the long term.

Past trade disputes have already prompted China to diversify its export markets, particularly towards the Global South.

This episode has driven China to confront domestic economic flaws—issues which, ultimately, can only be addressed in Beijing, not Washington.

Top picture credit: Getty Images

BBC InDepth is your destination for authoritative analysis, insightful perspectives, and in-depth reporting on today’s major issues. Explore thought-provoking material from across BBC Sounds and iPlayer. We welcome your feedback on the InDepth section via the button below.

The White House had long treated the deal as a condition for expanded security support.

Chinese exporters tell the BBC that if the US declines their goods, “other countries have funds” to purchase them.

Mohsen Mahdawi was detained by authorities following an American citizenship interview in mid-April.

Governor Gretchen Whitmer’s uneasy embrace with Trump reflects the nuanced challenge of working alongside his administration.

He had previously stated he lacked authority to retrieve Kilmar Ábrego García from El Salvador.