The U.S.-China trade war has escalated, with China tightening export controls in response to U.S. restrictions. Despite threats of additional tariffs, China has reduced its reliance on U.S. exports, with trade to the U.S. now accounting for just 10% of total exports. These tensions may push China to introduce fiscal stimulus measures and focus on technological innovation, particularly in AI and chip manufacturing, to strengthen self-sufficiency. While global markets remain complacent, China’s cautious approach and potential policy shifts could provide economic support, particularly for domestic consumption and the real estate sector.
The long-standing trade war between China and the U.S. has once again escalated, breaking the optimistic narrative of improving relations between the two nations. Recently, tensions flared up as China strengthened its export controls on rare earth minerals and graphite, directly responding to U.S. actions that further restricted access to American technologies. Following this, the Trump administration threatened to impose an additional 100% punitive tariff on Chinese exports. Both countries have adopted tough stances, yet paradoxically, they have also confirmed their willingness to continue negotiations.
At first glance, the recent threats from the Trump administration toward China may seem significant, but many people hold a different view. While these threats are likely another negotiation tactic ahead of the upcoming meeting between Trump and Xi Jinping later this month, it is crucial to note that since the onset of trade tensions under Trump’s administration, China has been strategically adjusting its economic structure.
Chinese exports to the U.S. have significantly declined
Due to China’s active efforts to strengthen trade relations with other partners, exports to the U.S. accounted for only 10% of China’s total exports in Q3 2025 (approximately 2% of GDP), a sharp drop from about 20% (around 4% of GDP) before 2019. Meanwhile, U.S. technology-related exports had already been tightly controlled even before the latest remarks from the current administration. Therefore, even if these threats fully materialize, the actual impact seems manageable; in fact, in some respects, this reinforces the constructive view on China’s stock market.
According to reports, DBS Group believes that the additional macroeconomic uncertainty brought by these trade disputes could eventually prompt the Chinese government to release the long-awaited fiscal measures. Although global capital markets have shown growing complacency toward the U.S.-China trade tariffs this year, Chinese regulators have clearly adopted a more cautious approach, opting to wait and observe while keeping reserves to respond to unforeseen events.
Future direction
Now, more efforts may be directed toward technological innovation, particularly the need to establish a domestic AI ecosystem similar to the U.S., which would accelerate the development of AI infrastructure and chip manufacturing. This strategic push aims to enhance China’s self-sufficiency and secure a victory in the emerging sovereign AI race.
Moreover, this evolving situation could also force regulators to introduce the long-anticipated fiscal stimulus measures, especially those designed to boost domestic consumption and stabilize the struggling real estate sector, thus providing stronger support for China’s economic outlook.