Peace and stability will be the public message when President Trump and China’s leader, Xi Jinping, meet in Beijing this week. But behind the diplomatic platitudes, both governments are quietly preparing for something tougher — a protracted economic war, mapping vulnerabilities and sharpening tools to inflict pain on the other.
In recent weeks, China has made it clear that it no longer fears another escalation. It arrived at a new legal mechanism to counter US sanctions. It blocked Meta’s acquisition of a promising AI start-up founded in China. And it codified rules aimed at punishing foreign companies that comply with Western efforts to withdraw from China.
The moves are part of Beijing’s broader campaign to push back against what it sees as Washington’s intensifying efforts to limit its economy and technological progress. Over the past year, the two countries have stepped up their economic offensives, pounding each other with steep tariffs, restricting the flow of rare earths and critical technologies and imposing sanctions on major industrial companies.
Whether Mr. Xi and Mr. Trump can agree to place even modest guardrails on their expanding economic arms will be a critical litmus test of whether their meeting succeeds.
“China is signaling more strongly that they are locked and loaded,” said Andrew Gilholm, a China expert at Control Risks, a consultancy. “We are on the verge of a much more frequent or widespread use of Chinese countermeasures against U.S. sanctions.”
It’s a moment to cherish, a decade in the making. In his first term, Mr. Trump that confrontation with China over technology and trade was inevitable. He imposed tariffs on certain Chinese sectors and singled out companies for sanctions. China responded with restrained, largely symbolic countermeasures as regulators drafted laws that mirrored US actions, created blacklists and export control lists.
But what started as a game of tit-for-tat has escalated and reached across global supply chains, leaving countries and companies scrambling to deal with the fallout. After years of reaction, China is going after entities that comply with Washington’s sanctions.
The growing concern is that both countries will use their expanding regulatory regimes as economic levers that draw other nations and companies into the fray. Business leaders and experts warn that the two superpowers are increasingly forcing the world to choose sides: China or the United States.
In April, Beijing announced sweeping rules giving regulators the power to examine company records, question employees and bar companies or executives from leaving China if they are found to be helping move supply chains out of the country.
That puts companies that make goods for Americans in a difficult position. Many have already moved factories to countries like Vietnam or Mexico to avoid sky-high tariffs on Chinese-made products, while others have drawn up contingency plans to do so.
The rules also open a new corporate battle, which Beijing saw in 2024 after PVH, the owner of Calvin Klein and Tommy Hilfiger, stopped buying cotton from Xinjiang, the western Chinese region. The United States has imposed an import ban on cotton from Xinjiang due to its association with forced labor.
China accused PVH of discrimination, launched an investigation and eventually placed the company on its “untrusted entity list,” a designation that can have legal ramifications, including restrictions on executives leaving the country.
It no longer appears to be an isolated case of retaliation. “It poses both a risk and a dilemma: ‘Do you want to break our law or American law?'” said Sean Stein, president of the US-China Business Council.
The shift in China’s regulatory stance accelerated last year after a series of aggressive actions by Washington, including raising tariffs to 145 percent, imposing fees on Chinese ships in US ports and restricting critical technologies such as semiconductors, chemicals and machinery.
“Now it has become a hot stove approach: ‘We have to show that when the United States takes action, they will touch a hot stove and get burned,'” Mr. Stein said, summarizing the Chinese perspective.
That approach means deploying new regulatory weapons, as Beijing did this month after Washington imposed sanctions on five Chinese refiners over their ties to Iran. China ordered the companies to defy the sanctions, invoking a blocking measure it adopted in 2021 to protect companies from foreign legislation it opposes.
China’s state-controlled media trumpeted the move as “a decisive step in China’s transition from building a legal reserve to the practical application of its foreign-related legal weapons,” and presented it as a showdown with American hegemony on behalf of the world.
The United States is “wielding the sanctions stick against law-abiding Chinese companies, seriously violating the rights of Chinese companies,” said the commentary in the People’s Daily, China’s largest daily and mouthpiece of the ruling Communist Party.
The five refineries, including the Hengli Petrochemical Refinery, one of China’s largest private refiners, are among the biggest buyers of restricted Iranian oil and central to China’s industrial policy.
The Chinese government has come to see Washington’s economic nationalism and trade protectionism as part of a longer trend that threatens China’s economy and national security.
To stave off a deep economic slowdown triggered by a property crisis, Beijing has propped up manufacturing through subsidies and tax breaks, leaving China with a huge and growing trade surplus with much of the world.
Sanctions and restrictions “will pose a serious danger to the security of China’s supply chain, so China needs to deal with this challenge in a more systemic way, not only to identify and provide early warning of the possible threat, but also to deal with this threat once it has already arisen,” said Wu Xinbo, director of the Center for American Studies at Fudan University in Shanghai.
“China,” he added, “needs to establish a legal framework to deal with these kinds of challenges in the long term.”
