In the wake of Donald Trump’s victory in the U.S. presidential election in 2024, Chinese policymakers and intellectual elites feared the worst for relations between China and the United States. The bitterness and trauma of the first Trump administration’s trade war lingered in Beijing. And with an already sluggish economy and glaring vulnerabilities from trade interdependence, China’s leaders braced for what experts privately called an “unprecedented storm” that could doom bilateral relations.

Six months into Trump’s second term, however, the outlook in Beijing has improved markedly. The storm came and went—and left Chinese policymakers feeling that they have far more power and leverage over the United States on trade than they had previously imagined. And for now, at least, Beijing views the trade-deficit-obsessed Trump as a more pragmatic and adaptable partner to work with than the China hawks that called the shots during Trump’s first term.

China’s leaders now believe they can broker a trade deal with Trump to reduce tensions. They are eager to host a summit between Trump and Chinese leader Xi Jinping this fall to establish a more positive tone for the relationship between Washington and Beijing. The newfound optimism does not mean that Beijing thinks it has found a permanent solution to U.S.-Chinese relations, however; the overwhelming feeling in elite circles in China remains that the two countries are entangled in long-term strategic competition. But China’s leaders want to use their trade leverage to craft a deal that will buy them time to mitigate their political and security vulnerabilities. In dealing with a second Trump administration, China’s leaders believe they may have found an opportunity to achieve their goals without a war with the United States.

When Trump was inaugurated for a second time on January 20, 2025, Beijing expected that he would resume bilateral relations where he had left them four years earlier. That meant revamped efforts by his administration to address the trade imbalance between the United States and China, likely through aggressive punitive tariffs. Beijing also braced itself for U.S. criticism of China’s political regime, including its treatment of minority groups and dissidents, and worried about enhanced U.S. support for Taiwan.

Early signs confirmed these suspicions. In February and March, Trump imposed two rounds of ten percent tariffs on Chinese exports because of concerns about fentanyl coming into the United States from China. When China responded to Trump’s broader “Liberation Day” tariffs in April with countermeasures including reciprocal tariffs and export restrictions, the United States placed an additional 125 percent tariff on Chinese exports to the United States. Combined with existing levies, by mid-April, the U.S. tariff rate for goods from China had reached nearly 150 percent—a major escalation that didn’t seem to offer any way out.

But then the situation took an interesting turn. Many observers believed that China had taken a major risk by pushing back on Trump and that China’s economy would not be able to withstand a trade war. But once reciprocal tariffs were in place, Beijing was surprised to see that it was Washington that was more eager to de-escalate trade tensions. The United States and China signed an agreement in Geneva on May 12 to reduce tariff rates, and Trump and Xi had a follow-up phone call on June 5. Although the agreement did not eliminate tariffs, the first round of trade escalation was over. China’s leaders felt, to their surprise, that they were in a very strong position on trade with the United States.

Many policymakers in Beijing concluded from the events in April and May that the United States’ ability to tolerate a trade shock is weaker than China’s, which made Washington desperate to find a........

© Foreign Affairs