US President Donald Trump is once again balancing between confrontation and conciliation with Beijing. His recent decision to de-escalate trade tensions after threatening 100% tariffs on Chinese imports reflects a calculated, if precarious, effort to calm markets while retaining leverage in an intensifying technological and geopolitical rivalry. Wall Street reads reassurance; Beijing reads uncertainty. Both are correct.

The tariff threat followed Beijing’s move to tighten export controls on rare-earth minerals, which are crucial for manufacturing semiconductors, batteries and defense systems. The US market reacted with sharp volatility, prompting Treasury Secretary Scott Bessent and senior aides to counsel restraint. The White House, eager to redirect attention toward Trump’s Middle East initiative, pivoted to reassurance. Trump’s social media post — “Don’t worry about China, it will all be fine!” — was a psychological signal. Yet beneath the optimism lies the structural truth that US–China competition has evolved into a geoeconomic rivalry extending across trade, technology, resources and ideology.

A trade truce that isn’t

Both Washington and Beijing have incentives to cool tensions ahead of an anticipated Trump–Xi summit. China’s Ministry of Commerce issued a statement pledging to enforce its new export controls in a “prudential and moderate” way — a rare instance of linguistic restraint that analysts interpreted as a tacit admission of overreach. The statement met with conspicuously muted state media coverage, signaling an official desire to avoid escalation.

Still, the structural confrontation remains. Washington demands that China rescind its rare-earth restrictions. Beijing refuses, as it sees control over critical minerals as one of its last asymmetric levers. The result is a managed cycle of confrontation and détente, an uneasy equilibrium that stabilizes markets without resolving the underlying rivalry.

Trump’s balancing act targets multiple audiences. Domestically, he projects toughness on China while promising investors that markets will remain orderly. Internationally, he signals flexibility to allies nervous about protectionism. But the deeper shift is strategic: The border between trade policy and national security has largely vanished. As both powers weaponize economic interdependence, supply chains and export controls, the instruments of globalization have turned into tools of coercion.

The October 30 Trump–Xi meeting in Busan, South Korea — their first in six years — illustrates the point. Trump declared the meeting “a 12 out of 10.” In essence, the two leaders agreed to delay new US tariffs and defer China’s export-control regime on rare earths for one year. Beijing also pledged once again to limit precursor chemicals used in fentanyl production, while Washington cut associated tariffs from 20% to 10%. China promised to purchase 12 million metric tons of US soybeans this season and at least 25 million tons annually for three years, below the 2020 level of 34 million tons but politically useful to US farmers regardless. Both sides also agreed to “work toward” a resolution regarding the US’ ban on the Chinese-owned social media app, TikTok.

But the agenda’s narrowing tells another story. Discussions of industrial reform and rebalancing toward domestic consumption have all but disappeared. The draft 15th Five-Year Plan (2026–2030) emphasizes export-oriented industrial upgrading and strategic autonomy in science and technology. China’s household consumption remains only 39% of GDP, compared with roughly 58% in advanced economies. Absent deep reform, its structural trade surplus — and Washington’s frustration — will persist.

A more troubling feature of the Busan deal is Washington’s decision to liberalize certain export controls at a time of accelerating tech rivalry. The administration reportedly approved limited sales of technology company Nvidia’s H20 chips to China, taking a 15% revenue share, and is considering loosening restrictions on some high-end graphics processing units. This approach contrasts with former US President Joe Biden’s administration’s “small yard, high fence” doctrine and instead reflects a “keep them addicted” strategy: allow enough US chips to maintain dependence but not autonomy. Such pragmatism may buy short-term leverage, but it risks accelerating Beijing’s drive for semiconductor self-sufficiency.

Arctic frontiers and the new geography of power

While trade headlines dominate, another front in the US–China–Russia triangle is emerging: the Arctic. As reported by The Wall Street Journal, a Canadian cargo vessel, the MV Nunalik, encountered a violent Arctic storm while supplying the US Pituffik Space Base in Greenland. This underscores Western logistical fragility in an increasingly contested polar region.

The Arctic holds vast energy reserves, rare minerals and new shipping corridors. It is also the shortest ballistic trajectory between Russia and North America. As Russia fortifies its northern infrastructure and China calls itself a “near-Arctic state,” Washington and NATO scramble to regain parity. “This is one of the only areas where we cannot go toe-to-toe with our adversaries,” warns Troy Bouffard, Assistant Professor for Arctic Security at the University of Alaska Fairbanks.

Trump’s pledge to develop a next-generation Golden Dome missile-defense system reflects a recognition that deterrence increasingly depends on fusing AI, quantum sensing and Arctic surveillance. However, as Bouffard notes, “for the West, this is like starting from scratch.” The Arctic race encapsulates a broader transformation: geography, technology and infrastructure have merged into instruments of power.

Legal ambiguity compounds the challenge. Under Article 234 of the United Nations Convention on the Law of the Sea (UNCLOS), coastal states may regulate navigation in ice-covered areas to prevent pollution. Russia uses this clause to justify restrictive control of the Northern Sea Route, while China’s near-Arctic posture challenges conventional interpretations.

The Arctic is becoming a domain of 21st-century sovereignty: geography, climate change, logistics, orbital intelligence and raw materials all converge here, just as land masses and territorial waters once defined greatness. The Arctic race bears striking parallels with space militarization: both domains are dotted with constellations of capabilities — satellites, sensors, missile-shields, icebreakers — rather than settled populations.

Rival blueprints for technological power

If trade and the Arctic are tactical battlegrounds, artificial intelligence defines the strategic high ground. The United States and China are not merely racing to develop algorithms but competing to build alternative civilizational architectures of intelligence.

Washington views the contest primarily as a sprint toward Artificial General Intelligence (AGI) — a self-learning, human-surpassing capability with transformative potential. “China is not years behind us—maybe six months,” White House AI and Crypto Czar David Sacks said in April 2025. US frontier models still outperform Chinese equivalents across engineering, cybersecurity and cost-efficiency metrics, but the gap is narrowing.

Beijing’s strategy is more applied and systemic. Rather than chase AGI, China seeks to diffuse embedded intelligence — AI and machine learning integration in devices — throughout its industrial base. Its AI + Manufacturing initiative aims for 60% of major firms to use AI systems by 2025 and universal adoption by 2035. This “embodied AI” model leverages China’s scale in robotics, sensors and automation — an industrial ecosystem that boosts efficiency and supply resilience rather than headline-grabbing consumer apps.

In effect, the US builds ever-larger models; China builds machines that use models. Both paths hold merit, but only one ensures control over the physical foundations of economic power. As the Atlantic Council think tank notes, “AI competition is as much about ecosystems and standards as about breakthroughs.” Whoever dominates the AI stack may shape future warfare, governance, ethics and global norms. Open-source AI becomes a fault line: US institutions worry about Chinese exploitation, while China views openness as an avenue for global diffusion of its standards.

Minerals, markets and the “big square, great wall”

China’s rare-earth export controls expose the asymmetry of vulnerability between the two superpowers. Washington can restrict China’s access to advanced chips; Beijing can choke US access to the materials needed to make them. China refines 92% of the world’s rare earths. Its new measures extend jurisdiction to products containing even trace amounts of Chinese-processed inputs — a “big square, great wall” doctrine that mirrors America’s “small yard, high fence” export-control regime but projects power downstream into finished goods.

“This is basically like the United States’ Foreign Direct Product Rule, but with Chinese characteristics,” observes Rush Doshi, a former National Security Council official. Beijing can effectively weaponize inputs of production just as Washington weaponizes high technology. Recent European automotive disruptions after China’s export curbs on gallium and germanium underscore the reach of these dependencies.

For all the rhetoric about “decoupling,” neither economy can fully disengage. The US depends on Chinese materials; China depends on US capital and technology. Each seeks leverage without collapse, a strategy of managed interdependence that now defines global power.

Weaponized interdependence and the erosion of norms

Export bans, sanctions and AI restrictions are pushing the global economy into a legal gray zone. Economic coercion is becoming normalized under the banner of national security, eroding the post-Cold War liberal order that presumed markets and politics could be separated. Both Washington and Beijing are redefining sovereignty through control of data, supply chains and resource corridors rather than borders.

Multilateral governance is struggling to adapt. The World Trade Organization’s security exemptions were never designed for algorithmic export controls or cross-border data regimes. As a result, new “minilateral” coalitions — AUKUS, the Quad and even NATO’s Arctic coordination — are filling the void. These arrangements promise agility and trust but also accelerate fragmentation.

The Arctic again illustrates the trend. China’s self-designation as a near-Arctic state and Russia’s invocation of UNCLOS Article 234 highlight a creeping extraterritoriality that mirrors the militarization of space. Sovereignty is extending beyond borders into technological and logistical constellations: satellites, sensors, icebreakers and cloud networks.

From deals to strategy

Trump’s China policy defies neat classification as either hawkish or dovish; it reflects a pattern of aggressive pragmatism. His method is inherently transactional, escalating tensions to extract leverage and then easing them to restore equilibrium. This approach underscores his instinctive skill as a negotiator, one who views diplomacy as an extension of deal-making.

However, Trump continues to wager that China’s dependence on US markets exceeds America’s reliance on Chinese supply chains — a proposition that looks increasingly fragile. Chinese exports to the US have fallen nearly 20% over the past year, yet Beijing’s global trade surplus is on track to surpass $1.2 trillion. At the same time, China’s dominance in refining critical minerals and battery components gives it a latent form of leverage that Washington cannot easily replicate. The US still controls the financial and technological chokepoints of globalization, but Beijing increasingly controls the material arteries that sustain them.

Resilience as the decisive metric

The contest between the US and China will hinge less on who innovates first than on who best manages interdependence. Dominance may prove fleeting as vulnerability endures. The state that can reduce exposure to coercion while sustaining innovation and alliance cohesion will define the next era’s rules.

Deterrence today depends as much on stabilizing markets as on projecting strength. Both Washington and Beijing are discovering that weaponized interdependence cuts both ways. Each side’s leverage also exposes its own weak points.

In a world where financial, technological and climatic shocks reverberate instantly across borders, resilience has become more than a measure of endurance. It is the ability that will ultimately decide the balance of power.

[Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.