The trade war between the United States and China has entered a phase of direct confrontation. Washington has imposed tariffs of up to 245% on Chinese exports, while Beijing has retaliated with countermeasures and tariffs of 125% on American products. Despite calls for dialogue, Chinese President Xi Jinping states he is ready to “fight to the end.”

As highlighted in a recent BBC analysis, China is mobilizing a series of powerful “weapons” – some well-known, others less prominent – to strengthen its position and withstand the pressure.

Here are the five key advantages China holds in the ongoing trade war:

• Economic Resilience and Domestic Consumption
  With a population exceeding one billion and a robust manufacturing base, China can endure greater pressures than other economies. The government is working to “unlock” the power of the domestic consumer through subsidy packages and incentives for retirees. Moreover, its authoritarian system allows it to sidestep public pressure.

• Investment in Technological Dominance
  China is no longer merely “the world’s factory.” With massive investments in artificial intelligence, green energy, microchips, and electric vehicles, it aims to lead in the new digital world. Recently, Beijing announced a ten-year investment plan exceeding $1 trillion for innovation, while Chinese companies (like BYD) are already surpassing American giants.

• Decoupling from the U.S. and Pivoting to the Global South
  Since the first round of tariffs were imposed (under Trump in 2018), China has accelerated its drive for self-sufficiency. The Belt and Road initiative has strengthened relations with Southeast Asia, Africa, and Latin America. Today, China is the largest trading partner for 60 countries. Imports of soybeans from the U.S. have been halved, with Brazil stepping in as the key supplier.

• Management of U.S. Bonds
  China holds about $700 billion in U.S. government bonds. While selling these would hurt China itself, the ability to impact American markets creates a significant leverage point. However, analysts believe Beijing will likely only deploy this “weapon” as a threat.

• Dominance in Rare Earths and Strategic Metals
  This may be China’s strongest card. It accounts for 61% of global rare earth production and 92% of its processing. These are irreplaceable elements in the production of electronics, AI chips, defense systems, and electric vehicles. Already, Beijing has imposed restrictions on seven critical rare earth elements and recently banned exports of antimony, sparking global panic.

China asserts that it will not succumb to U.S. pressure. It possesses depth, resources, and experience from the previous Trump administration’s term.

However, the trade war is not without costs: every choice comes with consequences for the global economy. While both sides engage in high-stakes poker, global markets hold their breath.