From Tariff War to State Welcome: The Changing China-US Relationship
Prem Sagar Poudel
A decade ago, Donald Trump’s political rhetoric toward China was notably tough. He made the US trade deficit, the decline of American manufacturing and China’s economic rise central issues. Today, the same President Trump is preparing to welcome Chinese President Xi Jinping with state honors. This change cannot be explained simply as a matter of personal friendship or a softening of policy. Behind it lies the strategic reality that has developed between the world’s two largest economies. Both countries have the capacity to exert pressure on each other, yet neither can easily achieve its objectives by separating itself from the other.
Tariffs were the principal instrument of Trump’s initial China policy. The expectation was that making Chinese goods more expensive would reduce their sales in the American market. Trump argued that this would increase pressure on China, bring manufacturing back to the United States and reduce the trade deficit. But the structure of global supply chains was not so simple. China depended on the American market, while the United States and its partners were also deeply connected to Chinese manufacturing and industrial supply systems. Consequently, the tariff war imposed costs not only on China but also on American businesses and consumers.
During this period, the true nature of China’s industrial development became increasingly clear. Its strength was not based solely on inexpensive labor and large-scale manufacturing. China had spent years expanding industrial infrastructure, processing technologies, research capabilities and production networks. It had developed the capacity to connect different stages of production, from raw materials to finished goods, within an integrated industrial system. This structure helped China withstand external trade pressure and adjust its production and markets to changing circumstances.
China’s industrial strength is not measured by production volume alone. Processing technologies, production costs, skilled workers and integrated supply systems have also contributed to its international competitiveness.
Rare earth elements provide an important example. These minerals are not found exclusively in China. However, China has a strong position in the processing infrastructure needed to transform them into high-value materials that industries can use. According to the International Energy Agency, China accounted for approximately 60 percent of global mining of magnet rare earth elements in 2024. Its share reached 91 percent in processing and 94 percent in the production of sintered permanent magnets. These figures illustrate the distinction between mineral resources and industrial capability. Extracting raw materials is one stage; transforming them into materials ready for use in advanced industries requires an entirely different set of capabilities.
China did not achieve this position overnight. Processing infrastructure, industrial investment, technical expertise and expanding production capacity contributed to its development. The extensive industrial base established in permanent magnet manufacturing has further strengthened the supply chain from raw materials to finished products. China’s role in rare earth elements, therefore, extends beyond that of a mineral supplier. It is also a major center for essential industrial materials and technologically advanced products.
These materials are used not only in smartphones and electric vehicles but also in robotics, energy systems, advanced electronics, aviation and defense industries. When China introduced export controls on certain rare earth elements and related products in 2025, the effects were felt across international supply systems. The United States and other industrial economies began placing greater emphasis on developing alternative supply chains. However, opening a new mine is not the same as establishing a complete industrial system extending from processing to magnet manufacturing. Such a system requires time, investment and technical expertise.
This exposed an important limitation of the tariff war. Pressure can be imposed on a major industrial economy, but its manufacturing and processing capabilities cannot be replaced immediately. This is one reason Washington has emphasized mineral partnerships with allied countries, domestic production and the expansion of processing capacity. Economic security can no longer be managed simply by raising tariffs on imports.
Changes in China’s export structure are also significant. In 2025, its global merchandise trade surplus reached approximately US$1.2 trillion. Although Chinese exports to the United States declined, trade expanded in other markets. Commerce with Southeast Asia, Africa and Europe supported overall exports. This demonstrates the adaptability of China’s industrial system. When pressure increases in one market, China can seek new markets and adjust its production and trade routes.
American statistics also show changes in bilateral trade. In 2025, the US goods trade deficit with China stood at approximately US$202.7 billion. From January to July 2026, it was approximately US$91.2 billion. These figures cover different periods and therefore cannot be directly compared to establish an annual trend. Any assessment of the bilateral deficit must also consider the relocation of production, changes in supply routes and China’s trade with other markets. A reduction in the US trade deficit with China does not, by itself, demonstrate a weakening of China’s overall industrial capacity.
Xi Jinping’s visit to Washington must be understood against this background. The White House has announced that President Xi and Peng Liyuan will receive a state welcome on September 24. Trump is scheduled to welcome Xi at Joint Base Andrews on September 23. Such a high-level reception carries diplomatic significance. However, the grandeur of the ceremony alone cannot establish that the differences between the two countries have been resolved. Its real significance will emerge from the subsequent discussions and the implementation of any agreements reached.
Competition between the United States and China continues, but its character is changing. It is no longer centered on tariffs alone. Artificial intelligence, semiconductors, advanced computing, robotics and energy technologies have become major areas of competition. The United States possesses substantial capabilities in advanced chip design, software, financial markets and research infrastructure. China has a vast manufacturing base and domestic market, alongside a strong presence in infrastructure development, industrial expansion and critical supply chains. Since the two countries’ strengths lie in different areas, no single indicator can determine the overall outcome of their competition.
Artificial intelligence has added a new dimension to this competition. The technology is closely connected to industry, finance, communications and national security. Alongside the pursuit of technological leadership, the need to manage potential security risks has also increased. Discussions are taking place about a possible mechanism through which officials from the two countries could exchange information on serious security incidents related to artificial intelligence. However, a proposed mechanism differs from an agreement already in force. It remains to be seen how far the forthcoming talks will advance this issue.
Describing the state honors accorded to Xi as an American surrender would be an exaggeration. Treating them as a routine diplomatic formality would also be incomplete. They demonstrate the importance attached to dialogue between the two countries. Washington intends to continue competing with China, while Beijing also recognizes the importance of American markets, finance and technology. Both countries possess the capacity to inflict economic damage on each other, but both would also bear costs from such actions.
Another dimension of this relationship is the changing international power structure. China is no longer an economy confined to producing inexpensive goods. Its industrial capabilities have expanded in rare earth processing, electric vehicles, batteries, clean energy and telecommunications. Chinese companies and research institutions have also become increasingly active in artificial intelligence and advanced manufacturing. The United States remains one of the world’s major financial, technological and military powers. A deep confrontation between these two economies could have consequences across the world. Managing risks alongside competition has therefore become increasingly important.
These developments also carry an important message for countries such as Nepal. China is Nepal’s neighbor and an important development partner. Nepal also has longstanding diplomatic and development relations with the United States. Competition between the two countries can affect Nepal through trade, technology, finance and international institutions. Nepal therefore needs a deeper understanding of the changing global power structure. Rather than adopting the strategic narrative of any single power as its own conclusion, it should clearly define its economic needs, national interests and diplomatic priorities.
Nepal can also draw lessons from China’s industrial development. Its experience in linking infrastructure construction with production, developing technical expertise and emphasizing higher-value products rather than raw materials may offer useful insights. However, adopting another country’s development model without adaptation is not a solution. Nepal needs its own development strategy based on its geography, market size, available resources and institutional capabilities. The practical value of friendly international relations should also be reflected in their contribution to national development.
The red carpet being prepared for Xi Jinping raises an important question: How will the United States and China manage their competition after a decade of trade tensions? Major powers can exert pressure on one another and seek leadership in technology and markets. But in a world characterized by deep economic interdependence, the need for dialogue does not disappear.
The significance of the forthcoming Washington talks will not be determined by the grandeur of the ceremony. What matters is whether concrete agreements emerge on trade, rare earth minerals, artificial intelligence and strategic stability. An even more consequential question is how reliable the mechanisms for implementing those agreements will be. The state welcome provides an opportunity for dialogue. The responsibility for turning that opportunity into long-term stability will rest with the leadership of both countries.
