America Still Has the Upper Hand Over China

By most accounts, China has the upper hand in its growing economic confrontation with the United States. In April 2025, after Washington levied heavy tariffs on China, Beijing responded with export restrictions on rare-earth minerals that led the Trump administration to back down. And in May 2026, when U.S. President Donald Trump and Chinese leader Xi Jinping met in Beijing, the American delegation fell short of even its very limited objectives. The most notable success Trump could point to from the summit was Beijing’s agreement to buy 200 Boeing aircraft, but even that was a big step down from the 500 he had touted before the trip. Since then, many observers have suggested that the United States’ position has weakened further. China has tightened export controls on rare earths, while leading voices in Washington have cast doubt on the effectiveness of U.S. tools to restrict exports of semiconductors. But this pessimism obscures an important reality: the United States has more potential economic leverage than China does. Rather than reflecting underlying weakness, Washington’s concessions to Beijing since early 2025 are a function of China wielding its limited economic weapons effectively and the United States failing to do the same with its own more powerful arsenal. In fact, Washington maintains crucial structural advantages over Beijing—most notably because China depends on the United States and its allies for high-tech imports and to provide markets for its export-driven growth model. Still, to be able to use this leverage, the United States needs to act in concert with its Asian and European allies. U.S. allies share American concerns about Chinese economic statecraft and could jointly push back on Beijing. Until now, however, the second Trump administration has imposed tariffs on these allies and tried to take on China alone. Washington will be able to mount an effective response to China’s economic coercion only if it coordinates its economic statecraft with allies rather than drives them away. GOING ALL IN China has a few powerful economic weapons at its disposal. And in the U.S.-Chinese trade war in 2025, Beijing used its most potent ones, including curtailing exports of rare earths. Since first imposing export restrictions on rare earths in April 2025, Beijing has alternately tightened and relaxed them as negotiating leverage. In November 2025, as part of a truce with Washington, China suspended some restrictions, but in June 2026, it ramped up pressure by blacklisting two flagship U.S. rare-earth companies, MP Materials and USA Rare Earth, cutting them off from imports of dual-use items that could have both civilian and military applications. China controls around 70 percent of the world’s rare-earth mining production and about 90 percent of global processing capacity, which means that Washington is dependent on Beijing to source rare earths. Although the absolute value of China’s rare-earth exports to the United States is less than $1 billion annually, cutting them off threatens the many U.S. manufacturers that rely on them—and the magnets derived from them—as inputs to make goods as varied as electric vehicle motors, magnetic resonance imaging (MRI) machines, and F-35 fighter jets. China also froze imports of U.S. soybeans, a major U.S. agricultural export. In 2024, more than half of U.S. soybean exports went to China; the sudden moratorium that China imposed from June to August 2025 imperiled nearly $13 billion of annual revenue and disproportionately affected politically sensitive agricultural states in the U.S. heartland. Soybeans are far and away the largest American product that relies primarily on Chinese buyers—the next largest, copper scrap, totaled only $2.8 billion in exports to China in 2024—and China has plenty of alternative suppliers of soybeans, such as Brazil, that are eager to trade. Rare earths and soybeans, however, are outliers in the overall picture of U.S.-Chinese economic dependencies. In both cases, China can easily inflict disproportionate harm on the United States. As the economic statecraft expert Edward Fishman described in Foreign Affairs, a chokepoint requires market dominance, few alternatives, and the ability to impose pain with minimal costs. China’s rare-earth production, in particular, is a clear example of a chokepoint. But although chokepoints can be extremely effective in the near term, they are likely to weaken once they are weaponized, especially if they do not involve extremely complex technology and can be overcome by investing in alternative supply chains. NOT-SO-RARE EARTHS U.S. policymakers have long known that China had the potential to weaponize the rare-earth chokepoint, but they did little to minimize this threat. Reducing dependencies requires time, money, and political capital, and Washington was unwilling to expend these resources in sufficient quantities before China restricted exports of rare earths in April 2025. Washington is now developing other suppliers, including by ramping up funding for rare-earth producers in the United States and partner countries. In 2025, the Pentagon invested $400 million in MP Materials, the owner of the primary rare-earth mining and processing site in North America. Spending has only increased since then. In late 2025, the Trump administration also announced $1.4 billion in financing for the rare-earth companies Vulcan Elements and ReElement Technologies, and it followed up in early 2026 with a pledge to invest $1.6 billion in the company USA Rare Earth. Developing new rare-earth supply chains is challenging. China’s dominance of rare-earth processing has been built over three decades, and the country has acquired sector-specific knowledge and constructed specialized production facilities that are not easy to replicate elsewhere. Beijing has also been willing to heavily subsidize rare-earth producers and accept the tremendous environmental damage that they cause—processing one ton of rare earths creates around 2,000 tons of toxic waste. Advanced democracies are likely to be far more reluctant to absorb these costs. The U.S. regulatory system is also a hindrance: litigation over permits for new mines and processing facilities takes time, and the possibility of legal quagmires jeopardizes financing for these projects. Beyond rare earths, observers have raised broader concerns about potential Chinese economic chokepoints. Yet it appears that Beijing cannot easily weaponize other key industries it dominates, such as the production of lithium-ion batteries and pharmaceutical ingredients. Chokepoints are likely to weaken once they are weaponized. If Beijing tried to withhold battery exports to the United States, for instance, it would risk cutting off Chinese revenue while handing market share to Japanese and South Korean competitors. When, in October 2025, Beijing imposed export licenses on advanced battery technology, it suspended the controls within a month as part of its trade truce with Washington. And although hundreds of U.S.-approved medicines depend on at least one chemical made only in China, it would be difficult for China to use this leverage. An attempt to cut off supplies to the United States would redound across the world and inflict pain widely because most active pharmaceutical ingredients from China are processed into finished drugs in Europe and India. Halting medical supplies also risks global opprobrium because it directly threatens individual lives, which is why when Beijing imposed restrictions on rare earths last year, it exempted exports for medical uses and other humanitarian purposes. And in contrast to rare earths, the United States can reduce China’s potential leverage by stockpiling active pharmaceutical ingredients, which can be stored cheaply, remain effective longer than finished drugs, and be converted into a variety of useful medicines. STILL AHEAD A focus on China’s leverage over the United States ignores China’s own vulnerabilities. The United States maintains a clear advantage in high-tech sectors such as chip design; commercial aircraft production; heavy-duty gas turbines, which are now in high demand to power data centers; and electron microscopes and other tools used in cutting-edge scientific research. In 2025, U.S. firms generated 58 percent of global profits in high-tech sectors, and firms from NATO countries and U.S. allies and partners in East Asia contributed another 26 percent. In contrast, Chinese firms, including those in Hong Kong, generated only eight percent of global high-tech profits. The United States and its allies have a similar margin over China in high-tech sales, too, but profits are the best indicator of economic power—and a potential chokepoint—because they show there are barriers preventing others from entering the market. U.S. chipmakers earn huge profits, for instance, because China still cannot design or manufacture the most advanced chips without American software or equipment made by U.S. allies and partners, and its homegrown alternatives are significantly less advanced and cannot be produced efficiently or at scale. U.S. allies are the overwhelming source of China’s imported intermediate goods. An even bigger challenge for China is its manufacturing sector’s overall reliance on imported intermediate goods—the products used as inputs to make other items. Even after more than a decade of pushing hard for self-sufficiency, Beijing still needs a huge number of intermediate goods shipped in from abroad. Many of these, such as photoresist, a lithography chemical used in semiconductors, are too costly or difficult for China to effectively replace with domestic alternatives. And since these inputs are needed to produce other goods, losing access to them could wreak havoc along entire Chinese supply chains. There is a ceiling to how much damage the United States alone can do to China’s economy by restricting intermediate inputs. Although China imports $2 trillion of intermediate goods globally, a mere $128 billion of that comes from the United States. But if the United States worked together with its allies in Asia and Europe to impose pressure, it would be far more effective. This is because U.S. allies are the overwhelming source of China’s imported intermediate goods. Indeed, although China runs an overall trade surplus, for intermediate goods it runs a trade deficit of $350 billion with U.S. allies. Two-thirds of the $488 billion of electronic parts and components that China imported in 2021 came from U.S. Asian treaty allies and Taiwan. China’s aggregate trade surplus also leaves Beijing at risk of coordinated economic statecraft. China exports $1.9 trillion worth of goods to the United States and its allies annually. A decision to collectively reduce imports from China would be far more painful for China than it would be for the United States and its allies, especially because China’s economic growth model and tax base are so dependent on exports. As domestic consumption lags and new investment generates diminishing returns, China is growing even more reliant on access to foreign markets for economic survival. All of this means that multilateral economic pressure on China is likely to be far more effective than trying to take on Beijing alone. When we modeled potential economic warfare scenarios in our 2025 book on economic power balances in the U.S.-Chinese relationship, we found that if Washington unilaterally severed all its trade with Beijing, Chinese losses would be only about one-third greater than those of the United States, which is hardly decisive. But as we wrote in Foreign Affairs last year, if the United States and its allies jointly cut off economic ties with China, the damage to China’s economy would be five to 11 times as large as that to the U.S. economy. BETTER TOGETHER For over a decade, Washington has lobbied its allies to use their collective economic weight to push back against China’s exploitative economic practices, including heavily subsidizing its firms and undervaluing its currency. These practices have now produced so much overcapacity in China that it is squeezing manufacturers in East Asia and Europe and generating a strong sense that a collective response is needed. But rather than taking advantage of this opportunity to craft an economic alliance that would maximize leverage over China, the Trump administration has gone in the opposite direction. It has levied high tariffs on its own allies, many of which were also pressured into committing to huge investments in the United States. Washington tightened the screws on its allies rather than on Beijing, sapping the United States of economic leverage and forcing it to confront China alone. The United States, however, can still coordinate with its allies to curb China’s mercantilist practices. It has already launched some efforts to do so. One of the consequences of Beijing’s aggressive weaponization of rare-earth exports in 2025 was the creation of Pax Silica, a U.S.-led coalition to secure AI-related supply chains and diminish China’s leverage over rare earths, data infrastructure, and advanced manufacturing. Founded in December 2025 by the United States with Australia, Israel, Japan, Singapore, South Korea, and the United Kingdom—and since joined by Germany, India, the Netherlands, the European Union, and more than a dozen other partners—Pax Silica coordinates allied investment in mining, refining, and stockpiling rare earths, sets shared supply chain security standards, and limits adversaries’ access to sensitive technologies. Pax Silica should be just the start. Washington and its allies could adopt that model to eviscerate China’s capacity for economic coercion in other important areas, such as pharmaceuticals, batteries, and drones. And they can go further than just circumventing China’s chokepoints by working jointly to constrain China’s mercantilism and building the capacity to coordinate sanctions that could be levied against China in a moment of crisis. Together, the United States and its partners have a huge store of untapped economic power that can protect U.S. and allied interests. The question is whether leaders in Washington are willing to use it. You are reading a free article Subscribe to Foreign Affairs to get unlimited access. - Paywall-free reading of new articles and over a century of archives - Six issues a year in print and online, plus audio articles - Unlock access to the Foreign Affairs app for reading on the go Already a subscriber? Sign In