Trump’s deference toward Xi is not simply a sign of weakness; it is an encounter with structural reality—the undeniable fact that China has built leverage, across rare earths, manufacturing, trade, and now Iran, that no tariff can neutralize and no Supreme Court ruling can restore.
Washington spent decades portraying China as a “near-peer” competitor, implying that American primacy remained intact. That was true for a while, but is now officially obsolete, for China competes effectively with America in almost every metric. For example, in purchasing power terms, China’s economy has already surpassed America’s and its shipbuilding capacity has been assessed at up to 230 times that of the US. It has built dominance in the critical mineral supply chains that underpin modern manufacturing, defence, and the energy transition. China has proven that, as America’s only peer, it has the scale, resilience, resources, and countermeasures to absorb punishment and return it.
The more profound issue is that peer-level rivalry cannot be managed through the tools designed for lesser powers. A country that lacks the power to withstand the pressure can be successfully sanctioned and isolated. The same cannot be said of the world’s second-largest economy, the factory of the world, and the near-monopoly supplier of materials America’s military and industrial base cannot function without. Every instrument Trump has sought to deploy against China has hit this ceiling. That is the primary reason Trump deployed his charm offensive in Beijing.
Trump’s theory was simple: escalate tariffs until Beijing folds, but China did not fold. Instead, it retaliated methodically—with counter-tariffs on American agricultural exports that squeezed Trump’s rural base and rare earth export licensing restrictions that briefly threatened to halt American auto and defence manufacturing. China controls roughly 90 percent of the global supply of permanent magnets made from rare earth elements. When Beijing almost immediately activated that lever, Washington insiders reported that Trump reversed course within a single afternoon, acknowledging the extent of China’s leverage. Companies trying to diversify away from China find that diversification almost always involves Chinese companies, which dominate manufacturing investment across Southeast Asia. China is not a node in the global supply chain; in many sectors, it is the chain.
When, earlier this year, the US Supreme Court struck down Trump’s emergency tariff authority as unconstitutional, the instrument he had used to impose sweeping, flexible pressure across virtually every American trading partner had evaporated. Trump arrived in Beijing not as the man who had broken China’s economy, but as the man whose primary legal weapon his own Supreme Court had made irrelevant.
If the tariff debacle reduced Trump’s leverage, the Iran war is in the process of eviscerating any remaining aura of dominance. Iran has not capitulated. The strait has not reopened. The ongoing conflict has left the US weaker, more distracted, and resource-constrained than it might otherwise have been in Chinese eyes. Trump arrived in Beijing clearly needing Xi’s help on Iran, in addition to his forbearance on trade. In short, Trump has put himself in an impossible box and only Xi can dig him out of the hole he has dug for himself. But Trump left without a rare earth agreement, tariff resolution, or any hint of Iranian cooperation. Instead, he got (rehashed) soybean commitments, a long-term apparent commitment to purchase Boeing aircraft, and a photo at the Temple of Heaven.
All of this points toward a conclusion that neither side can make politically but that facts compel: the US and China have no realistic alternative to functional coexistence. Climate, AI, food security, and financial stability are some of the domains where both countries remain indispensable. Genuine decoupling—the kind that ends China’s structural leverage—would require rebuilding global manufacturing and critical resource supply chains from the ground up, over decades. That is simply not going to happen. While America and the world were sleeping, Beijing secured critical mineral supplies throughout the world. The world made China the epicenter of global manufacturing, and that is where it will remain for the foreseeable future.
When the US and China collide, the shockwaves travel through every supply chain, energy market, and financial system simultaneously. Competitive coexistence, wherein China and the US maximize their comparative advantages while both maintain the economic interdependence that neither can afford to sever, appears to be the only viable path forward.
Trump’s deference toward Xi is not simply a sign of weakness; it is an encounter with structural reality—the undeniable fact that China has built leverage, across rare earths, manufacturing, trade, and now Iran, that no tariff can neutralize and no Supreme Court ruling can restore. Attempting to manage a true peer requires something Trump has resisted throughout his presidency: a strategy designed not for domination, but for coexistence. The Beijing summit was evidence that he is beginning, reluctantly and without admitting it, to learn that lesson.
Daniel Wagner is CEO of Country Risk Solutions and author of five books on China.
