China’s Economic Warfare – The US Has Options, It’s Just a Matter of Will
China holds significant leverage in global trade negotiations; however, the US remains the customer with the most money and cannot be replaced as an export market. The US is the world’s number-two manufacturing country and could manufacture essentially anything it chooses, provided there is political will, adequate funding, a reduction in regulatory restrictions, and a willingness to accept a temporary increase in prices in exchange for national security.
From this perspective, China’s industrial and economic leverage over the US exists only to the extent that the US allows it or lacks the will to overcome it.
China is engaged in economic warfare against the US, deliberately expanding production and deepening global dependence on Chinese exports while reducing its own reliance on imports. Because of China’s command-economy structure, the CCP can impose top-down economic and industrial policy and enforce it through its control over private and state companies, including state-owned banks that finance economically unviable projects as long as they advance Communist Party objectives.
This system has created massive overcapacity, systemic dumping, and excess supply now flooding both emerging and mature markets, causing job losses and damaging manufacturing sectors in developing and developd economies. In 2025, China is on track to run the largest trade surplus in world history, exceeding its already unprecedented $992 billion surplus in 2024.
One of the more overt tools in China’s arsenal is its control not only over rare-earth exports but also over rare-earth processing, where it holds a near monopoly. The US has a number of very legitimate complaints against China, such as China’s theft of intellectual property and its use of government subsidies to undercut foreign manufacturers. However, in trade negotiations with the United States, China can always use the imposition of export restrictions on critical minerals as a bargaining chip.
By controlling rare-earth exports, China can reduce US access to magnets essential to manufacturing industries and defense technologies. At the same time, China dominates rare-earth processing, so even if the US finds alternative sources of the raw minerals, they may still need to be processed in China. This puts China in a position of advantage, providing the CCP with a coercive tool to seek policy concessions in trade negotiations with the United States and to punish other countries. Critical minerals are only one example of China’s leverage over essential supply chains.
Chinese producers wield significant control over active pharmaceutical ingredients and key energy-infrastructure equipment. The concern is that if China cut off pharmaceutical exports, the US could lose access to life-saving medicines. However, unlike rare-earth minerals, there are clear workarounds the US could implement to remove China from the pharmaceutical supply chain. China has far more leverage with rare-earth minerals because the processing stage is extremely polluting, and environmental restrictions in Europe and the US make it nearly impossible to process them domestically. With pharmaceuticals, however, the US can produce them, and China’s dominance is based on convenience and low cost, not necessity.
The media is full of reports claiming that it would take the US two to three years to reinvest and build new facilities to replace Chinese pharmaceutical imports. However, as long as there is demand and people are willing to pay, companies will find a way to fill that need. Pharmaceutical producers in India, Europe, and the US could rapidly scale up production, and rising prices caused by shortages would create enormous profit incentives to fill the gap. The US could also reduce import restrictions and increase purchases from Europe and other developed countries. India, in particular, has significant pharmaceutical manufacturing capacity and could expand production of many generics relatively quickly.
In a genuine crisis, or to cut China out of the supply chain permanently, the US could implement emergency measures such as fast-tracking FDA approvals for alternative suppliers, temporarily accepting European Medicines Agency approvals, waiving certain regulatory requirements under emergency authorization, and increasing imports from allied nations including India, Europe, Japan, and South Korea. Unlike rare-earth processing, pharmaceutical manufacturing capacity already exists worldwide. It is not a China-only capability; China simply became the cheapest supplier. Other countries have the facilities and expertise and could ramp up production within months, not years.
The prevalence of Chinese components in US critical infrastructure is another area where China not only has trade leverage but is directly endangering US national security. And, like the pharmaceutical industry, China and Chinese components could be cut out of US technology entirely; it is simply a choice. Chinese state-sponsored technology companies such as Huawei, along with cyber actors such as Volt Typhoon, have pre-positioned assets inside US critical infrastructure, potentially enabling Beijing to disrupt US power, communications, water, banking, transportation, and other vital systems in a crisis or conflict.
It seems irrational to allow the Chinese Communist Party access to US energy and communication grids, particularly given that much of China’s technology is based on stolen US technology or technology transferred from US companies operating in China. Clearly the US has the capability to develop these systems, but, like pharmaceuticals, it has simply become cheaper and more convenient to allow China to handle the manufacturing.
In addition to the benefits the US gains by cutting China out of critical supply chains, the US also has leverage over China because of China’s own economic problems. China’s economy, once characterized by rapid double-digit growth, has slowed sharply, with GDP growth hovering around 5% in each of the past three years. A major factor is the real estate crisis, with major developers such as Evergrande and Country Garden defaulting or facing severe financial stress. Real estate, which accounts for 20–30% of China’s GDP, has become a significant drag on economic performance. Real estate sales provide most of the income for local governments, which are now facing debt of at least $6 trillion. China’s total public and private debt now stands at more than 300% of GDP.
Demographic challenges are further straining China’s economy. The population declined for the first time in decades in 2022, marking the beginning of a long-term demographic shift. An aging population is shrinking the labor force while increasing pension and healthcare burdens. Youth unemployment has also become a major concern, reaching a record high of more than 21% in 2023. The government has since redefined youth unemployment, which lowered the reported percentage, but it still stands at about 14%. President Trump’s trade war with China and the extremely high tariffs have greatly reduced foreign direct investment into China, which has declined 51% year over year.
In past decades, the CCP could boost the economy by encouraging rapid urbanization. However, with more than 60 percent of the country already urbanized and the countryside emptying out, particularly of young people, those quick fixes are gone. No easy solutions remain.
The US has key cards to play in negotiations with China. Additionally, the US can encourage its allies to exclude China from their supply chains, as the flood of cheap Chinese products is gutting their industries and eliminating job opportunities for their young people.
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