Analysis-Under cover of trade truce with Trump, China expands economic pressure toolkit

By Mei Mei Chu

BEIJING, April 27 (Reuters) – When U.S. President Donald Trump met Chinese President Xi Jinping last October, he rated the summit a “12 out of 10,” and the White House said China would “effectively eliminate” rare earth export controls and cease retaliation against U.S. firms.

Instead, even as it has refrained from overt criticism of Trump over the Iran war and signalled it wants a positive meeting between the two leaders, Beijing has quickly moved to expand its toolkit of economic pressure mechanisms aimed at Washington.

Since last October, China has enacted laws to punish foreign entities that shift supply chains away from China, tightened the rare earth licensing regime, banned foreign AI chips from state-funded data centres, barred U.S. and Israeli cybersecurity software from Chinese companies and is weighing curbs on solar manufacturing equipment exports to the United States.

The pattern speaks to something more than reactive tit-for-tat, experts say, with China using the trade truce to build out a menu of economic influence tools that was, until recently, almost exclusively Washington’s domain ahead of a planned summit between Xi and Trump in mid-May.

“The hope on the Chinese side is for a longer lasting, more broadly rooted truce, but it’s very much that ‘if you want peace, prepare for war’ logic,” said Joe Mazur, geopolitics analyst at Beijing-based consultancy Trivium China.

The truce, set to expire in November 2026, was forged in part by Beijing’s threats last year to restrict rare earth exports to the U.S. Those controls caused shortages across U.S. auto supply chains within weeks, helping to bring Trump to the negotiating table with Xi at a meeting in Busan, South Korea, analysts said.

China has not idly bided its time since then and has enacted several potential retaliatory measures, that could be used against efforts to offshore production from the country or to impose measures against its raw material imports, that it feels are necessary to defend its interests. 

In April, Premier Li Qiang signed two regulations – the first of their kind in China – granting authorities sweeping new powers to investigate foreign firms, governments and individuals accused of discriminating against China’s industrial and supply chains, and enforcing what Beijing calls “unjustified extraterritorial jurisdiction” against Chinese entities. Authorities may deny entry, expel and seize the assets of those found in violation.

The conflict in Iran sharpened China’s focus on new economic measures, particularly as U.S. Treasury Secretary Scott Bessent threatened in mid-April to sanction buyers of Iranian oil exports, of which China buys 80%.

Yuyuan Tantian, a social media account affiliated with state broadcaster CCTV, framed the new regulations explicitly as legal countermeasures, writing two days after Bessent’s warning: “In the past, our countermeasures were largely concentrated in the trade domain. But today’s international friction is comprehensive, and those tools are no longer sufficient.”

The rules on supply chain and extraterritorial interference took effect immediately, with no opportunity for business feedback, said Michael Hart, president of the American Chamber of Commerce in China.

“Companies now face an asymmetry: China can reduce purchases from foreign firms with little consequence, while a foreign company that cuts its dependence on China risks investigation,” Hart said.

China’s Ministry of Commerce and Ministry of Foreign Affairs did not immediately respond to requests for comment. 

CHOKE POINT STANDOFF

Washington has applied its own pressure, launching trade probes into excess industrial capacity and the use of forced labour in China in March, on top of export restrictions on semiconductors and chipmaking equipment that have slowed China’s ability to produce cutting-edge chips.

“It’s because of export controls that China doesn’t have access to some of the most advanced semiconductor manufacturing equipment in the world,” said Chim Lee, industrial policy analyst at the Economist Intelligence Unit.

The competition for leverage has also complicated a deal for China to buy tens of billions of dollars’ worth of Boeing aircraft. Beijing wants the planes and spare parts, but Washington has said it needs Chinese shipments of the rare earth yttrium to make jet engines, according to U.S. government and company officials with knowledge of the discussions.

Beijing has responded to the U.S. moves with escalating regulatory force. Since late 2025, it has required chipmakers to use at least 50% domestically made equipment when adding new capacity, banned certain U.S. and Israeli cybersecurity software and mandated state-funded data centres to replace foreign AI chips – compelling domestic substitution while pushing U.S. suppliers out of the Chinese market.

China’s use of extraterritorial export controls could “disrupt global supply chains on an unprecedented scale, leading to both economic and non-economic damage,” the European Chamber in China wrote in an April report on China’s export controls.

As the U.S. moves to reduce its dependence on Chinese critical minerals, China is racing to identify new choke points. Officials have held initial talks with solar panel equipment providers about limiting exports of the most advanced technology to the U.S.

“There’s going to be more effort on the Chinese side to identify where those choke points are,” Trivium China’s Mazur said. “They’re going to keep throwing things at the wall to see what sticks.”

(Reporting by Mei Mei Chu; Editing by Antoni Slodkowski and Christian Schmollinger)