It's been a whirlwind 12 months for China, as the nation's economic stimulus plan, acceleration of AI innovation, and tariff stand-off with United States President Donald Trump all significantly impacted the Asian powerhouse's economic outlook.
With severe housing market vulnerabilities and Evergrande's high-profile defaults still looming large in the rearview mirror, the prospect of a trade war with the United States would've seemed like a challenge too far for China's economy in recent years.
However, the nation's push towards becoming an AI front-runner and its rollout of stimulus packages geared towards galvanizing its economy have helped China to shake off the impact of Trump's tariffs.
Just weeks after sparking a tit-for-tat trade war with China, the Trump administration already appears set to backtrack on its steep tariffs on Chinese imports, by more than 50% in some cases, as a means of de-escalating tensions with Beijing.
Considering the momentum that the Chinese Communist Party (CCP) has been seeking to compete directly with the US in AI innovation, it appears increasingly clear that the United States had more to lose in a trade war all along.
Quantifying a Trade War
It can be challenging to quantify the global impact of a trade war concerning the world's two largest economies, particularly when considering that their economies make up 43% of global GDP. However, the numbers underline the differing priorities of the two economic superpowers.
China is the third-largest export market for the US, with exports exceeding $195 billion in 2024. While the year's $295 billion US trade deficit with China was the largest United States deficit with any country, it was at its lowest level since 2009.
As for imported goods, Chinese imports amount to around 13.5% of the market, weighing in second to Mexico. However, these imported goods consist of key technologies such as computers, electric batteries, and video displays.
Another impact of a trade war could be found in China's $760 billion worth of US treasury bonds, which makes the Asian nation the second-largest foreign creditor to the United States behind Japan.
Although this points to a symbiotic trade relationship between China and the United States, the Asian nation's sales to the US amounted to just 2% of its GDP.
It's for this reason that statement actions such as the return of two Boeing planes by China to the United States, as well as the refusal to take delivery of a further 50 aircraft, have been profoundly damaging to American manufacturing first and foremost.
Opportunities in AI
Bubbling under the surface of China's trade tensions with the United States is an artificial intelligence space race that the Chinese Communist Party (CCP) intends to win.
Conscious of what could be interpreted as a threat to the US, President Trump has sought to increase restrictions, such as export controls on chips being sold to China.
However, widening US chip bans along with the successful launch of DeepSeek in January 2025 have aided the Chinese AI ecosystem to innovate at a faster pace, improving its hold on the global tech landscape with growing use cases.
In March, the hotly anticipated launch of the Chinese AI bot, Manus, caused its registration site to crash. Meanwhile, Butterfly Effect, the company that launched the bot, claims that its technology outperforms the capabilities of US ChatGPT creators, OpenAI.
China's proactive tech stance when it comes to artificial intelligence has been a source of optimism for its government, which intends to out-innovate the United States even when challenged with a hefty trade war.
If the US ultimately retains its hard-ball stance on Chinese AI innovation, China's growing momentum in the space will be a source of optimism in the nation's economic recovery.
Today, China possesses almost two-times the volume of STEM-oriented PhD graduates in science and technology programs than the US, at a volume of 77,000 to 40,000, respectively. When excluding international students from the roll call, then China's ratio against the United States reaches 3 to 1.
China has also sought to create stronger undergraduate engineering programs and vocational engineering disciplines to build a sizeable workforce of factory and innovation that's packed with hands-on experience.
Backed by more regulatory efficiency unveiled in January, when it comes to setting up and running businesses, we can once again see the benefits of a nation that's intent on out-innovating its economic challenges of the past and present.
Government Stimulus is Key
Having launched an ambitious stimulus package in September 2024, the Central Bank of China (PBoC) has been bold in cutting interest rates and mortgage rates, and the loosening of some criteria associated with granting mortgages.
The strategy aims to provide an injection of liquidity that could amount to nearly 1% of China's GDP, and fresh financing mechanisms have aided more financial institutions to buy shares on the stock market.
Soon after the measures were announced, the State Council published measures to encourage more businesses to hire and local governments to aid the development of employment in their regions in a bid to sustain a wider economic recovery.
The long-term outlook for China is to reach its 5% growth target regardless of the impact of US tariffs on trade. The nation's economic stimulus and commitment to AI innovations will have a decisive impact on whether its ambitions are realized.
With the US facing growth forecast cuts to 1.8% off the back of its self-made tariff turmoil, confidence is growing that the days of sky-high tariffs with the United States are numbered, leaving Asia's largest economic power in control of its recovery.
