What will China do now?

Hello Swamp Things. I’m back from book leave, and like everyone else, I am digesting the tsunami of consequences that flow from the US toppling of Venezuelan president and strongman Nicolás Maduro. There are endless things to say here, but one angle that is still underplayed is how much what’s happening is about not just the US and Venezuela, but the US and China. 

As I discuss in my Monday column, the geopolitical situation today has so much in common with the 19th-century “great game” between the British and the Russians. That was a messy, long and extremely global conflict, and the US-China great power conflict will be, too. One of the most important things to think about now is what action China might take in response to the ousting of Maduro and the US seizure of Venezuelan oil supplies. 

In some ways, it’s a question of whether Beijing will conduct business as usual — which would argue for some quid pro quo involving the tightening of rare earth mineral supplies or even a blockade around Taiwan — or whether it will go down a different route. 

From the moment he was elected, Donald Trump handed China a golden opportunity for diplomacy with the rest of the world. This has been particularly true in the president’s second term. But Beijing isn’t the best at soft power. I was amazed, following “liberation day”, that we didn’t see more Chinese outreach to Brussels. Yes, new US tariffs on Chinese products meant that there would likely be more dumping of cheap goods into Europe. But wouldn’t that have been the perfect time for Beijing and Brussels to bond, given that Trump was also slapping tariffs on the Europeans, too? 

One could have imagined discussions over how to rebalance consumption and production between the two regions, which might have in turn morphed into a broader framework for how to reform global trade. Everyone knows we need it, but nobody is doing it. With the US on the outs with allies, China and the EU could have assumed leadership there. Instead, we’ve ended up with more of the same from Beijing (Europe has a rising trade deficit with China) and a frightened, paralysed EU stuck in between two warring superpowers. 

What will China do now that Trump is pretending to be William McKinley? To me, the smart answer would be to grab the peacemaker mantle. If I were sitting in Beijing, I’d be thinking about bringing together the emerging countries in the new Silk Road trade pathway to make a joint statement about events. I might also be thinking about the moment for making a case at the IMF for a move away from a dollar-based global currency regime. It’s much easier to make such a case when the US is perceived as corrupt and aggressive. 

But what we might see instead is horse-trading between Washington and Beijing. Chinese leaders must surely be interested in seeing what sort of deal the US might be willing to make over Taiwan, as part of a larger “spheres of influence” discussion. The Trump administration is interested in semiconductors, but not democracy, so it’s quite possible that the two countries might quietly agree to the idea of an eventual Chinese takeover of the island, after America has got whatever intellectual property it needs from Taiwanese chipmaker TSMC as it rebuilds its domestic chip industry. Would there then be some way of managing the diplomatic fallout with Japan, Korea, Australia and other US allies in the region? Who knows? But horse-trading and dealmaking is the language that Trump speaks. 

The big question, again, is what China will do. One thing I’m betting is that the country’s shift to clean energy will only accelerate. Being a fossil fuel importer is a weak link, and Beijing wants to create a more secure energy future, which will be crucial not only for domestic politics, but for its own AI ambitions globally. If there’s any silver lining to the events of the past week, perhaps it’s that American petropolitics will speed up the rest of the world’s access to Chinese solar panels. 

We are lucky to have as a respondent today the FT’s Beijing bureau chief, Joe Leahy. Joe, our Beltway audience will be very interested to hear your take on what China will, won’t and should do to make hay with this new American imperialism. What words of wisdom do you have for us?  

Recommended reading

I’m catching up on my reading post book leave and so have called out some older pieces this week. Given that you’re probably dealing with too much political news, I’ve also picked softer ones, apart from a particularly smart FT markets look at the year ahead. 

• Elizabeth Oldfield is on to something with this piece about the modern commune. I suspect that the K-shaped economy and housing prices will make intra-generational cohabitation and even living with friends and strangers the new normal in future. 

• Peggy Noonan is quite right that American music is reflecting something worrisomely retro.

• I was struck, reading the obituary of Norman Podhoretz a few weeks back, how prescient he was about where the culture was heading.

• And in the FT, the always wonderful John Plender lays out what might be ahead for markets in 2026.

Joe Leahy replies

Thanks very much, Rana. Everything you suggest that Beijing should be doing in the wake of Trump’s actions, from building global alliances to trying to strike a deal on Taiwan with the US, makes sense. The only thing is, Xi Jinping, like Trump, is on his own track pursuing policies he believes are important to secure his legacy. 

Ahead of Trump’s “liberation day” tariffs, China did try to woo European and other countries. But throughout, Xi has focused almost single-mindedly on competition with the US. This means breaking US supremacy in semiconductor technology and building up China’s economic independence and military capacity so that no one will dare challenge Beijing even if one day it does attack Taiwan. 

Hence, China’s mercantilism — aggressively investing in advanced manufacturing with state support, even at the expense of ordinary Chinese, who need better wages and social benefits, and at the cost of trading partners, which are being swamped by Chinese imports. In this “G2” superpower game, European complaints about China’s mercantilism and tacit support for Russia despite the Ukraine war do not count for much with Beijing. 

So could Trump’s actions embolden Xi in Asia, or his “Donroe” doctrine even encourage a grand bargain? Trump might care little about Taiwan, but without its semiconductors there would be no AI boom. Xi could offer a deal that handed control of Taiwan to China but still guaranteed the US access to its chips. But even Trump would have to be sceptical of that, especially after how China squeezed the US on rare earths. So Xi will probably still expect stiff US opposition to any invasion of Taiwan. 

Trump’s increasing taste for foreign adventures might also give Xi pause for thought. The US military crushed Russian-supplied defences in Venezuela. Coupled with that, China’s Communist party hates unpredictability. In the past, US military alliances and economic power might have stopped Chinese aggression. Today, it’s Trump’s mercurial nature and irascibility that might be the last thing deterring Beijing.

Financial Times