By: Salman Rafi Sheikh
For nearly a decade, Washington has bet that economic pressure could slow China’s rise. Tariffs were supposed to discipline Beijing, weaken its export engine and restore US leverage. That bet failed. China, driven to export partly by domestic over-investment and weak internal demand, absorbed the shock and adjusted, recording an unprecedented US$ 1.19–1.20 trillion trade surplus, the largest ever for a major economy.
But the more important story is what comes next. As trade barriers lose their coercive power in a fragmented, multipolar economy, the US is shifting the battlefield. Power is moving away from tariffs and toward force, from trade rules to direct control over geography, resources and security. This shift exposes a deeper imbalance between the two powers. China’s strengths remain overwhelmingly economic; America’s comparative advantage lies elsewhere. The first round of competition was fought with tariffs. The second will be fought with force.
The Trade War That China Didn’t Lose
When the US first imposed sweeping tariffs on Chinese imports in 2018–19 under President Donald Trump, Washington proclaimed a new era of economic warfare. The goal was straightforward: use protectionist levies to shrink China’s export engine, squeeze Beijing’s growth and force strategic concessions in technology, intellectual property, and market access. What transpired, however, was far different. In 2025, China effectively won the economic round.
In 2025, China recorded a striking rebuke to the notion that tariffs could derail Beijing’s export juggernaut. Washington’s tariffs on Chinese goods undeniably dented shipments to the US, with exports to the US falling by about 20 percent. Yet, exports overall rose by roughly 5.5–6.6 percent, powered by surging demand elsewhere and propelling China into a record surplus.
How did this happen? China’s exporters responded to Washington’s tariffs by rewiring global trade routes and deepening commercial ties far beyond North America: Exports to Africa jumped by 26 percent. Shipments to Southeast Asia (ASEAN) increased by 13 per cent. Exports to the European Union, despite tensions, grew by 8 percent, and to Latin America by 7 percent. This expansion enabled China to absorb the tariff shock and continue expanding sales abroad. These numbers reveal the central irony: tariffs may have changed the geographic contours of Chinese trade, but they didn’t stop its growth.
Several structural factors explain China’s resilience. Beijing not only supplies cheap and accessible goods, but it also has a deeply entrenched position at the centre of global value chains, which means its manufacturing remains indispensable worldwide. A relatively weaker yuan has bolstered competitiveness, and Chinese firms have become adept at leveraging “China+1” production strategies to reduce tariff impacts. The result: rather than contracting under US pressure, China’s export-led growth helped sustain its official GDP expansion near 5 percent in 2025.
Round Two: Hard Power and the Shift from Tariffs
Going forward, however, China’s success appears to be the target of a much bigger force than tariffs: hard power. China’s continued economic resilience appears to have pushed Washington to shift the contest from tariffs to non-tariff instruments. If Round One was about trade barriers and export flows, Round Two is increasingly about security leverage, military reach and control over strategic geography. The objective remains unchanged: constraining China’s economic momentum while preserving US leverage. But the means are evolving. Energy and chokepoints have become central targets. US efforts to reassert control over Venezuelan oil threaten to deprive China of discounted crude and weaken its economic footprint in Latin America, while a forced regime change in Iran would disrupt one of Beijing’s most critical energy relationships and expose its dependence on vulnerable maritime corridors.
China imports roughly 13 million barrels per day (bpd), with 470,000 to over 600,000 from Venezuela in 2025, with another average of 1.38 million bpd from Iran. Losing those sources would cost China a considerable but replaceable 15.2 per cent of its daily supply. Together, these moves underscore a broader shift from economic coercion to power-backed control over resources and supply routes—a domain where the US holds a decisive advantage and China’s economic tools offer limited protection.
Tariffs bite at commerce. Force can secure access to resources and channels of trade. In recent months, the US strategy has increasingly merged economic and military objectives. The Trump administration has signalled a willingness to use hard power explicitly in pursuit of economic ends. This approach reflects Washington’s belief that control of strategic physical space — chokepoints, sea lanes, mineral supplies, and critical infrastructure — is central to safeguarding economic interests in an era of geopolitical rivalry.
Washington can pursue this strategy because it already holds a vast global military footprint that China lacks. According to some estimates, the US maintains approximately 750–800 overseas military sites in some 80 countries, constituting the bulk of global foreign military presence.
These installations — from naval bases in Japan, the Middle East, and Europe to airfields in the Indo-Pacific — provide Washington with unparalleled power projection. They enable rapid deployment of forces, logistical sustainment, and intelligence sharing with allies across continents. In contrast, China’s overseas military footprint is far smaller, limited primarily to a few logistics outposts (e.g., Djibouti) and minor arrangements abroad.
This hard power asymmetry matters for two reasons. First, it gives the US a vast and largely unchallenged operational reach. The US forces can respond quickly to crises in nearly every region from the Persian Gulf to Eastern Europe to the Western Pacific, far beyond Washington’s shores. China’s military, while modernizing and expanding, still largely focuses on regional deterrence and defense of its periphery.
Second, America’s military footprint gives it strategic leverage – at least for now, with deep concern growing over imperial overstretch and a national debt of US$43.2 trillion, with total debt to GDP of a worrying 133.2 percent, requiring interest payments of US$1.2 trillion annually. For now, at least, overseas bases underpin Washington’s network of alliances and security guarantees, which in turn help shape economic partnerships, energy routes, and diplomatic alignments. Unlike tariffs, this form of coercive leverage does not rely on changing prices; it rests on presence and potential force.
These factors were on display in 2025: despite China’s deep economic and diplomatic ties with Iran, Beijing was not the principal deterrent inhibiting US and Israeli military action against Tehran. Beijing’s economic weight didn’t translate into comparable geopolitical leverage in 2026 as well, when the US came very close—once again—to bombing Iran to bring regime change.
This dynamic underscores a key vulnerability: China may be able to sell to the world, but it lacks the hard power to defend those economic interests globally in the same way the US can defend its interests (or hurt Chinese interests).
Therefore, while China won Round One of the trade war by outmaneuvering US tariffs, Round Two is unfolding along different lines. The US is transitioning from economic tools to security levers.
Beijing’s strengths remain economic and diplomatic; it has little to no real equivalents to Washington’s global force projection. Though China continues to modernize its military and extend its influence, it cannot yet match the strategic footprint the US wields from Europe to the Middle East to East Asia. There is virtually no power that can match the US footprint. In this sense, China’s victory in Round One may be complete, but Round Two favors the side that controls not just markets, but oceans and the bases that dominate them.
Sure, there's a trade war. But more importantly, at home, a deeper crisis brews, and the outlook is grim.
For many decades, the Chinese government attempted to limit population growth through a one-child policy — only to abolish the rule in 2016 as it realized that the number of annual births had started to plummet at alarming levels.
The aggressive policy — alongside other extreme measures — succeeded far too well, with birth rates dropping a staggering 17 percent between 2024 and 2025 to the lowest level since 1949. The country’s population is now actively shrinking each year, and it’s hard to imagine how the trend could be reversed.
The situation has gotten so dire that Beijing eliminated tax incentives on condoms, hormonal birth control, and other contraceptives, as Fortune reports. Basically, it’s now desperately trying to reverse itself out of a fertility crisis of its own doing. President Xi Jinping has practically been pleading with the country’s women to bear more children.
Yet fewer and fewer women are interested in raising a family, sending China well below the “replacement rate” of 2.1 children per woman, meaning the government’s interventions are doing little to address the issue. Many countries around the world, including most of North and South America and Europe, are already experiencing below-replacement fertility rates. The situation playing out in China is a preview of what’s still to come in many other regions projected to experience a similar decline.
“The empirical evidence from other countries so far is that monetary incentives have almost no effect in raising fertility,” University of California professor of sociology Wang Feng told the New York Times.
Despite its economy growing by five percent last year, over 11 million people died while only 7.92 million babies were born. Meanwhile, a hot new app is trending in China: a countdown timer that single people have to reset regularly so their friends and family will know if they die alone.
The number of working-age people is also dropping as the population continues to age, further taxing healthcare systems and pension funds. The significant drop in the fertility rate will continue to have devastating effects, shifting demographics that could worsen the economic outlook. The cost of raising a child in China is still extremely high compared to other countries.
“With China’s economic woes, young people may want to wait and see, and that’s not good news for raising fertility,” Wang told the NYT.
In short, whether taxes on contraceptives and Xi’s calls for a “new type of marriage and childbearing culture” will reverse China’s plummeting birthrate remains unclear at best.
The country’s population has been shrinking since 2022, and judging by the latest numbers, the trend is bound to continue. And as the population continues to age, hundreds of millions could soon be leaving the workforce — a demographic crisis and ticking time bomb in one.
Uncle Sam bombs
China builds