China’s defiance explained: Why Xi doesn’t fear Trump’s trade war

The exemption will narrow the impact of the staggering tariffs imposed on Chinese goods entering the United States. But other than smartphones, computers, lithium-ion batteries, toys and video game consoles, there are so many other things, from screws to boilers, that China exports to America.

READ MORE: Trump vs Xi: Who blinks first in the tariff tug-of-war? The endgame scenarios

Why Beijing is not backing down

Limited direct GDP exposure to the US market: Before the tariff war began, China did enjoy a massive volume of exports to the United States—its largest trading partner. However, these exports only amounted to roughly 2% of China’s GDP. This stat is crucial because it gives context to China’s posture: while the tariffs sting, they aren’t enough to cripple the Chinese economy. Beijing likely sees this as manageable disruption rather than existential threat, especially compared to the systemic harm Trump’s tariffs could cause to American consumers and industries dependent on cheap Chinese inputs.

Speaking to Moneycontrol, a former Indian diplomat, on condition of anonymity, said, " They (China) are the ones who produce, somebody is producing and someone is consuming, who loses? Americans will not be able to replace Chinese goods in the next four years. It's very difficult to build up industry on that scale."

“The world's biggest consuming country and the world's biggest producing country must make a deal. They need each other,” he added.

Domestic cushioning and diversification: China has established substantial policy buffers, including a massive domestic market and government-controlled stimulus mechanisms. The Chinese government is actively deploying these tools, implementing central bank rate cuts and fiscal packages to support exporters and manufacturers. Simultaneously, they are accelerating efforts to expand domestic consumption, develop alternative markets through the Belt and Road Initiative (BRI), and lessen dependence on Western demand.

Long-term strategic resilience: President Xi Jinping has consistently framed China’s rise as one rooted in “self-reliance and hard work.” In his recent remarks, he asserted that China’s development over the past seven decades was “not a result of favors from others.” This message is not just ideological—it signals Beijing’s willingness to absorb short-term pain to preserve long-term autonomy, particularly in sectors deemed critical to national security like semiconductors, clean energy, and defence manufacturing.

China's focus on self-reliance is particularly evident in its push for technological independence, especially in semiconductors. The "Made in China 2025" initiative, while facing international scrutiny, highlights Beijing's ambition to achieve domestic self-sufficiency in core technologies.

The ‘China can’t be seen as weak’ narrative: “The country's opposition to power politics is not only to safeguard its own legitimate rights and interests, but also to uphold the common interests of all nations and to prevent humanity from regressing into law of the jungle.”

“The US intimidates certain countries, stopping them from doing business with us. But America is just a paper tiger. Don’t believe its bluff. One poke and it’ll burst!”

These statements by China are not mere rhetorics. Rather, they are a build-up of a powerful propaganda by the Chinese Communist Party that China must resist foreign domination at all costs. Conceding to US pressure could be seen as a sign of weakness and could undermine the party's authority.

China’s confidence in its central role in global economy: China's position rests on its belief that its role as the world's leading manufacturing hub, a critical pillar of the global economy, grants it sufficient leverage to withstand the tariff war. Beijing's policymakers are confident that escalating US tariffs will primarily burden American consumers and businesses through inflation and supply chain disruptions. This conviction fuels China's broader geopolitical goal: to capitalize on the economic fallout from Trump's tariff offensive, ultimately weakening US dominance and accelerating China's ascent to global superpower status.

“China is the one pole of the global economy, and they think that because of this tariff, the US will suffer huge inflation and therefore China will finally come up as a superpower,” said an expert familiar with the current trade dynamics,” Manindra K Tiwari, a chartered accountant and market expert, told Moneycontrol.

Could China be overplaying its hand?

While Beijing’s confidence is grounded in its manufacturing clout, some experts argue that it may be underestimating how fast the global supply chain can adapt — particularly with India stepping up.

“In my view, the Chinese vacuum will be completely filled by India and other developing nations. So, in the long run, China could find itself excluded from the global market,” Tiwari added.

This perspective reflects a growing sentiment among Western policymakers and corporations looking to “de-risk” from overdependence on China. India is increasingly being seen as viable alternative — not just for cheap labour, but also for geopolitical reliability.

China’s outreach to avoid isolation

While Beijing refuses to blink under US pressure, it is making desperate attempts to avoid global isolation. As the Global South finds itself increasingly squeezed between major power rivalries, China is actively pursuing strategic partnerships through diplomatic investment.

India: Amid the tariff crossfire, Beijing has stepped up messaging toward New Delhi. From urging better trade ties to highlighting comments by Indian leaders at public forums, China is signalling openness to detente with New Delhi—if only to hedge against further economic headwinds.

Yu Jing, spokesperson of Chinese Embassy in India, recently shared a video of External Affairs Minister S Jaishankar discussing India-China relations at the recently concluded News18 Rising Bharat Summit. “Hard-won progress, worth cherishing,” she captioned the video post.

Yu Jing had earlier said China and India, the two biggest developing countries, “should stand together to overcome the difficulties” created by the reciprocal tariffs imposed by the Donald Trump administration in the US.

She further said that China and India, which have a trade relationship based on complementarity and mutual benefit, are both facing the “US abuse of tariffs, which deprives countries, especially Global South countries, of their right to development”.

In the video, Jaishankar, in conversation with CNN-News18 Managing Editor Zakka Jacob, said that the relationship with China is currently better and disengagement, particularly the Demchok, was important.

European Union: Chinese President Xi Jinping urged the European Union earlier this week to join hands with Beijing in resisting "unilateral bullying" by the US. Senior officials, including Wang Yi, have also emphasized the need for multilateralism, warning the EU that US protectionism could destabilize global trade norms.

ASEAN & Global South: China continues to deepen economic engagement with Southeast Asia and Africa, offering infrastructure projects, debt relief, and trade deals as part of its larger counter-containment strategy.

How could this end up?

A fragile détente: A face-saving deal, possibly brokered via backchannel diplomacy, could lead to a temporary truce. This could involve token tariff reductions or sector-specific exemptions while both sides claim “victory” domestically. However, such deals would likely be fragile and prone to collapse if either side pushes too far.

The former diplomat, speaking to Moneycontrol, predicted a truce between the two countries. “I don’t think America will go any further than this with its tariffs, and they will make a deal. Though this may take some time.”

“In the end, China will win this battle, but the victory will be declared by Amrerica,” he added.

Tactical retreat by US: With inflation still a political flashpoint in the US and industry groups warning of supply chain shocks, Trump may face mounting pressure from domestic stakeholders to negotiate a partial rollback of tariffs—particularly if economic pain trickles down to swing states ahead of elections.

Is Trump running out of moves?

The tariff fallout is not just hurting economies across the globe, it has sent particular shockwaves through the US economy, with investors dumping government bonds, the dollar tumbling and consumer confidence plunging.

Adding to the pressure on Trump, Wall Street billionaires -- including a number of his own supporters -- have openly criticized the whole tariff strategy as damaging and counter-productive.

Now, the Trump administration exempting several consumer electronics from its import tariffs is seen by many as a partial dial down of the trade war with China.

Meanwhile, Beijing has responded with targeted retaliatory tariffs that avoid hurting its own economy while maximizing pressure on Trump’s base—farmers, auto workers, and small manufacturers. The exemptions may reflect a realization in D.C. that China’s response is more calibrated than expected.