China has undergone a fundamental strategic transformation demonstrated by its recent acts and statements of defiance against US pressure to succumb to trade tariffs, showing the power it wields.
US tariffs are "arrogant and shameless" said Xia Baolong, director of China's Hong Kong and Macao Affairs Office. "Let those American peasants wail before the 5,000 years of Chinese civilisation!"
Chinese President Xi Jinping previously said his country was “not afraid". An earlier statement by the Commerce Ministry called out the US, saying its actions highlight its practice of weaponising tariffs as coercion. The US is "turning itself into a joke", the representative added.
China has departed from its “hide your strength, bide your time” economic policy of the 1970s to the 1990s led by its de facto leader of the time Deng Xiaoping, and embraced the more confident and global-facing posture of Mr Xi.
Where Beijing once leant on quiet diplomacy, it now responds with overt resistance, backed by domestic economic restructuring, assertive foreign policy and co-ordinated national messaging. This pivot reflects a deeper calculation: that China is strong enough – economically and politically – to endure pressure and reshape the rules of global engagement.
From caution to confrontation
Leading up to a series of major trade escalations, Chinese officials sought to engage the Trump administration through diplomatic back channels. The aim, as reflected in state media, was to promote a “win-win” outcome. Some in Beijing believed a broader agreement on trade, technology and even cross-strait issues was within reach.
That changed abruptly following Washington’s announcement of sweeping tariffs, which raised the effective tax on Chinese imports to nearly 145 per cent. Beijing’s response was swift and unambiguous. Retaliatory tariffs were imposed before the US measures even took effect, signalling a deliberate shift in strategy.
Chinese officials amplified defiant messages across state media and social platforms. Quotes from Chairman Mao Zedong, such as “we will never yield”, were circulated widely, framing the trade war as a test of national resilience. This rhetorical hardening was matched by institutional action. China’s Foreign Ministry called key diplomats back to Beijing, while government departments reportedly moved to a “wartime” posture.
A key pillar of China’s response has been economic reorientation. Reducing dependency on US demand has moved from long-term vision to strategic necessity. Beijing has introduced direct subsidies, relaxed mortgage rules, tax incentives and infrastructure spending to spur domestic consumption.
Efforts to increase household spending go beyond stimulus. The government is expanding support for child and elder care, health services and education – targeting the social safety net to reduce precautionary saving. Meanwhile, financial policy has focused on liquidity: the central bank has eased credit, cut rates and directed funds towards small and medium-sized enterprises.
To stabilise sectors exposed to external pressure, such as real estate and manufacturing, China is also boosting internal tourism, easing visa policies, and enhancing payment systems to attract foreign visitors and spending.
Zong Liang, chief economist at the Bank of China’s research institute, said: “We have taken proactive steps to mitigate the impact of the trade war. We've made it easier for other countries to do business with us.” His remarks reflect a broader pivot: internal consolidation paired with external diversification.
Diplomatic counteroffensive
While reinforcing its domestic base, China has stepped up international outreach to counter US influence. Chinese diplomats have lobbied G20 nations and US allies alike, urging alignment around multilateral trade norms. Proposed joint declarations have positioned Beijing as a defender of the global trading system and opponent of economic unilateralism.
This outreach extends to key economic tools. When new US tariffs were imposed in February, Beijing retaliated not only with its own duties but also with targeted restrictions on US tech firms, including Google.
At the same time, Chinese businesses have aggressively pursued market diversification. Despite Washington’s pressure, China’s global export share remains robust – evidence that new trade partnerships are bearing fruit. Initiatives like the Belt and Road and regional trade agreements have expanded China's economic footprint, offering alternatives to reliance on the US market.
The launch of the digital yuan in Hong Kong marks another significant development. Residents on both sides of the border can now use digital wallets for cross-border payments, a step seen as part of Beijing’s long-term strategy to reduce reliance on the US dollar.
Rise of the yuan
China’s push to internationalise the yuan has gathered pace through a mix of institutional and bilateral mechanisms. A network of 31 offshore clearing banks now spans 27 countries, while the Cross-Border Interbank Payment System (Cips) continues to grow. Although Cips still leans on Swift infrastructure, it provides Beijing with an alternative pathway to settle trade in yuan.
Projects like mBridge – a multicentral bank digital currency platform involving the UAE, Saudi Arabia, Thailand and Hong Kong – showcase China’s interest in building new global financial channels. While it remains in early stages, it reflects a broader ambition to insulate the Chinese economy from future financial sanctions or shocks.
Bilateral agreements are also key. China has expanded yuan swap lines to 40 countries, including Brazil and Argentina, which now use the currency for part of their bilateral trade. At the same time, capital controls and exchange rate management still limit broader yuan adoption, its usage is steadily increasing in emerging markets.
Public messaging
Beijing has invested heavily in shaping public perception of the trade conflict. Far from framing it as a policy failure, officials have cast it as a patriotic struggle, invoking past moments of foreign resistance. A video of Mao Zedong declaring, “Regardless of how long this war lasts, we will never yield”, has been widely circulated.
This framing is both strategic and psychological. It bolsters national morale, legitimises current leadership and prepares the public for a drawn-out confrontation. The message is clear: this is not merely a trade dispute but a test of national resolve.
Despite its comprehensive strategy, China faces real limitations. Shifting to a consumption-led model is complicated by deep income inequality, an ageing population, and high costs in health care and education. Debt levels remain high, more than 300 per cent debt to GDP ratio in February, according to Carnegie Endowment for International Peace, and global uncertainty poses ongoing risks.
Nevertheless, China’s approach suggests a long-term recalibration rather than short-term manoeuvring. It is building the capacity – economically, diplomatically and psychologically – to endure confrontation with the United States.
The transformation under way may prove to be one of the most significant shifts in global economic dynamics. While the ultimate outcome remains uncertain, Beijing has signalled clearly that it no longer seeks accommodation. It is preparing for competition – and possibly confrontation – on its own terms.
