With the second Trump administration has come a dramatic shift in U.S. foreign economic policy. Washington is imposing tariffs on partners and rivals alike, slashing foreign aid, aggressively renegotiating trade deals, and rejecting multilateral diplomacy. The United States, in other words, is acting like a bully. And as countries around the world grow more wary of dealing with the United States, they are turning more and more to its main economic rival, China. That trade is one of several factors contributing to China’s rise in exports in 2025—which resulted in a trade surplus of nearly $1.2 trillion, a 20 percent increase.

Washington’s policies have, in fact, been a double boon for Beijing. Not only have China’s economic offerings become more attractive to partners looking for an alternative to working with the United States but U.S. pressure tactics have also made it more permissible for China to coerce others. Beijing’s increasing use of export controls and its flooding of foreign markets with cheap goods still generate unease in many of the countries with which it wants to do business. Yet its record of economic statecraft does not have to be perfect to succeed. China is honing its approach to the trade war with the United States while using multilateral deals, development projects, and strategic financing of key sectors to secure other countries’ place in Chinese supply chains. It may never pull most of these countries fully into its orbit. But using its economic carrots and sticks may give Beijing enough leverage to advance an important goal: minimize global opposition to China’s domestic and foreign policies.

FINE TUNING

For much of the last two decades, Beijing generally imposed sanctions in an informal, ad hoc manner. It avoided issuing public threats and often denied state involvement in or underlying political motivations for coercive economic measures, which included trade restrictions disguised as technical enforcement and food safety regulations, or boycotts ostensibly driven by nationalistic Chinese consumers. But over the past few years, China has been refining its approach. It has been developing new legal frameworks and using more sophisticated formal sanctions to defend its economic and security interests, borrowing tactics the United States and its partners have employed for years. Beijing has not shied away from escalation, either. In October, for instance, China announced additional rare-earth export controls that require foreign companies to obtain Chinese government approval before exporting products and equipment containing even minuscule amounts of Chinese-origin rare earths. The restrictions bore a striking resemblance to U.S. semiconductor controls and the foreign direct product rule, which extends U.S. export restrictions to any product made abroad with American technology. China has placed restrictions on rare-earth elements before, but the new ones are the most expansive yet, targeting entire global supply chains and tightening Beijing’s chokehold on a sector Chinese mining, refining, and manufacturing companies already dominate.

The use of export controls does not represent a wholesale change in China’s coercive strategy. These sanctions are still relatively limited in scope—Beijing deploys them primarily in reaction to Washington’s own tariffs and export controls or to punish other countries for supporting Taiwan. And the sanctions retain “Chinese characteristics”: Beijing often builds in ambiguity and flexibility to muddy perceptions of its intent and allow an off-ramp for de-escalation, as it did by tightening and loosening its rare-earth export controls over the last several months, generating uncertainty as well as an eagerness among targeted countries to try to negotiate sanctions removal. Nor has China let go of its habit of denying state involvement in coercive practices. After Japanese Prime Minister Sanae Takaichi said in November that Japan could respond militarily to Chinese use of force in Taiwan, Beijing issued travel advisories for Chinese citizens traveling to Japan, ostensibly because of safety concerns, and reinstated a ban on Japanese seafood imports, citing contamination.

In addition to sharpening some of its sticks—particularly those it uses against the United States and its close partners—China is dangling more carrots, renewing a charm offensive aimed at much of the rest of the world. In doing so, it is seizing an opportunity handed to it by the Trump administration: as the United States takes a nakedly self-interested approach to economic engagement, prioritizing investment in extractive sectors while axing development and humanitarian projects, China is attempting to present itself as a supportive, cooperative global player.

During UN General Assembly meetings in September, for instance, Chinese Premier Li Qiang gave yet another speech touting the Global Development Initiative, introduced in 2021. Li tied the GDI to a variety of Chinese-led funding programs and cooperative efforts to expand the adoption of artificial intelligence and increase access to clean energy, especially in the global South. Beijing has described the GDI as a means to achieve the UN’s 2030 Sustainable Development Goals and embedded the project within the UN itself, giving it greater international legitimacy and visibility—and extending that legitimacy to many of China’s overseas economic activities, including its “small yet beautiful” digital and green infrastructure projects. This new emphasis on smaller-scale, collaborative ventures is part of Beijing’s effort over the last several years to rebrand and recalibrate the Belt and Road Initiative, the ambitious global infrastructure program that China launched more than a decade ago, after facing pushback in partner countries over corruption and overpriced projects.

In addition to sharpening some of its sticks, China is dangling more carrots.

China’s economic might makes its offerings hard for other countries to resist. Particularly in strategic sectors such as electric vehicles (EVs) and critical minerals, Chinese companies, often aided by state subsidies and vertically integrated domestic supply chains, have outcompeted foreign ones, giving them dominant footholds abroad. Huawei, for example, has become the provider of choice for telecommunications infrastructure in many developing countries. Foreign governments themselves court readily available Chinese investment and financing, too, as a means to realize domestic economic ambitions and move up the value chain. Thailand, long a regional leader in auto manufacturing, started offering subsidies and tax breaks in 2022 to attract Chinese electric vehicle makers, recently securing over $1 billion in investment from BYD and Changan Automobile for two new factories. With this increasing competition from Chinese firms, in 2024 and 2025** **Japanese car producers shut down four factories that had long operated in Thailand.

The result of China’s increasing outreach over the last couple of decades is that many countries have become even more deeply embedded in Chinese-led supply chains. They are locked into working with China, even if they might have been receptive to other options. Indonesia, for example, professes openness to all investors, but the reality is that China dominates the country’s nickel mining and processing. (Indonesia is the world’s largest producer of nickel, which is used in electric vehicle batteries.) This dominance is no accident. In response to a series of Indonesian policies to promote value-added domestic processing, including a 2009 mining law requiring foreign divestment to ensure majority domestic ownership of mining ventures, as well as a 2020 ban on nickel ore exports, U.S., Australian, European, and Japanese mining companies sold their assets and scrapped factory plans. Chinese companies, meanwhile, made major investments in Indonesia’s nickel industry, including building industrial parks and smelting facilities. According to the American Enterprise Institute’s China Global Investment Tracker, Indonesia has become one of the top recipients of Chinese investment in the last few years. Even though Indonesia’s citizens have bristled at the working conditions in and environmental damage from Chinese facilities, they have no viable alternative: China’s presence there is already too large. The extent of its presence, moreover, ensures that China will remain a dominant player in related industries as Indonesia seeks to move up the value chain in EV battery production.

Cozy state-business relations can further entrench China’s clout. Many Indonesian elites, including some of those making key foreign and economic policy decisions, have financial stakes in the country’s mining and processing sectors and therefore reap personal gain from investment in those industries. Indonesian leaders therefore exhibit a degree of political deference toward Beijing, despite the country’s deep strain of anti-Chinese sentiment. Whereas Indonesia, the world’s most populous Muslim-majority country, has championed Palestinian statehood and spoken up about the humanitarian catastrophe in Gaza, it (along with several other Muslim-majority countries) voted against discussing China’s abuses of the Muslim Uyghurs at the UN Human Rights Council in 2022. Indonesian businesses have continued to deepen trade ties with Xinjiang, including through cooperation with the Xinjiang Production and Construction Corps, a state-owned paramilitary organization sanctioned by the United States, EU, and Canada for its alleged role in human rights abuses.

BUMPS AHEAD

China’s path to greater economic influence is not clear of obstacles. Many countries are still concerned about an influx of low-cost Chinese goods into their markets, a problem that began in the mid-2010s but has worsened as U.S. tariffs push China to direct goods formerly destined for the United States elsewhere, contributing to its record trade surplus last year. Beijing is hoping that a high volume of exports—which run the gamut from textiles to small consumer parcels to electric vehicles—will revive its slowing economy and make up for low domestic consumption. But for countries seeking to build up their own manufacturing capabilities, these cheap Chinese goods threaten to crowd out nascent industries. Governments around the world may be eager for Chinese trade and investment, but they do not want to just import Chinese products. Many have enacted policies to protect domestic industries and prioritize investment that supports local manufacturing, creates jobs, and generates value-added growth.

In Brazil, for example, Chinese electric and hybrid vehicle sales have surged in the last few years. Imports jumped by almost 100,000 vehicles between 2023 and 2024, when total imports numbered 138,000; Chinese automakers accounted for 89 percent of EVs sold in Brazil in the first half of 2024. Unsurprisingly, domestic and legacy carmakers have pushed back by commissioning an antidumping study and lobbying the Brazilian government to remove tariff breaks for Chinese companies. In response, the Brazilian government has progressively increased tariffs on imported EVs since 2024. Yet in October, the Chinese firm BYD opened a $1 billion factory—its largest facility outside Asia—in Brazil’s northeastern state of Bahia, on the site of a shuttered Ford plant, no less. Other Chinese automakers are ramping up assembly in Brazil, too.

Such investments face scrutiny over whether they truly create high-value growth, since parts are still sourced from China, and over legal violations. The newly opened BYD factory in Bahia, for instance, was the subject of a major controversy in Brazil. Construction was halted in late 2024 after Brazilian inspectors found its Chinese laborers working in a “degrading” environment, and Brazilian prosecutors are now suing BYD for creating “slavery-like” work conditions. Reactions on the ground matter to the success of Chinese investments and economic projects. If Chinese companies are receptive to addressing local concerns, China will have an easier time expanding its economic footprint in Brazil and elsewhere. And it will be able to keep many countries looped into Chinese supply chains—even if Washington is pushing those same countries to join global production chains that exclude Chinese companies and suppliers. Of course, U.S. pressure will still work sometimes. Mexico, which is China’s biggest auto buyer but whose economy overall is more intertwined with the United States’ economy than with China’s, turned down BYD plans to build a factory and slapped a 50 percent tariff on Chinese cars, which came into effect this month, as part of a policy to strengthen domestic manufacturing.

Yet in other cases, Trump’s tariffs have enabled China to make inroads with U.S. partners—sometimes by playing them off one another. When Canada followed the United States in imposing a 100 percent tariff on Chinese EVs, Beijing slapped retaliatory tariffs on Canadian canola oil and turned to Australian suppliers, which had been locked out of the Chinese market since 2020 over ostensible health violations. Canada responded with high-level outreach to China, a notable turnaround after several years of strained diplomatic relations. The Canadian prime minister suggested that punishing U.S. tariffs were part of the motivation. During his January visit to Beijing, China agreed to lower its tariffs on Canadian canola products, and Canada agreed to allow Chinese EV imports. Continued bullying tactics from Washington are only likely to push Canada and other countries closer to Beijing. They certainly undermine any U.S. attempt to coordinate with allies to counter China’s influence. It took sustained U.S. pressure to get partners on board with semiconductor export controls and to convince countries such as the United Kingdom to exclude the Chinese company Huawei from 5G networks. Erratic policies will make such American entreaties less persuasive.

GOOD ENOUGH

For now, China is happily capitalizing on the opening the United States has created to expand its economic reach. As U.S. tariffs make Beijing look like a more reliable trade partner than Washington, China is pursuing new deals: in October, it signed an upgrade to a free trade agreement with members of the Association of Southeast Asian Nations that is designed to expand cooperation in digital infrastructure, green development, and supply chain connectivity. And as global favorability of the United States declines—a 2025 Economist poll that covered 32 countries showed that preferences for the United States as the world’s leading power fell from 59 percent to 46 percent since the previous year, while preference for China rose to 33 percent, an 11 percent increase (including roughly 20 percent increases in Brazil, Canada, and Indonesia)—fears of Chinese coercion are likely to recede and eagerness to accept China’s offerings to increase. It helps, too, that far more than the United States, China has been adept at combining economic statecraft with propaganda and public diplomacy. Beijing quickly claims credit for successful investments, often dispatching an ambassador to attend a ribbon-cutting ceremony or write op-eds in local newspapers—making economic ties with China appear indispensable.

Many countries still need access to the U.S. economy and want an American security presence, as their efforts to strike deals on tariffs with the Trump administration make clear. Most governments are not tilting wholesale toward China. Plenty remain wary of China’s escalating coercion, its political and military aggressiveness, and the danger of getting caught between Washington and Beijing. But those concerns are dulled by the U.S. government’s own coercive tactics.

What China has done best is drive wedges between and within countries, undermining U.S.-led coalitions in the process. In Southeast Asia, China has cultivated ties with Cambodia, which now acts as Beijing’s proxy to undermine regional responses to Chinese encroachments on disputed islands and other features in the South China Sea. In Europe, Hungary—the recipient of 44 percent of Chinese foreign direct investment in the EU in 2023—has vetoed EU statements critical of China, endorsed Beijing’s peace plan for Ukraine, and established a security partnership with China. Beijing’s economic relationships do not amount to a Chinese-led bloc. But the lure of its market and capital could be enough—and in some cases already has been enough—to buy silence on issues that China cares about, including territorial disputes or human rights violations in Xinjiang. It may even be enough to dampen the world’s response to an invasion of Taiwan. After all, China’s willingness to use both its carrots and its sticks incentivizes other countries to avoid confrontation and leave Beijing to pursue its interests with relative impunity—while the United States increasingly struggles to rally the world to push back.

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