U.S. Leverage Points Against China

According to BCA Research’s GeoMacro Strategy service, the U.S. has two key leverage points it can use against China.

1. U.S. Consumer Market

The U.S. consumer market is the largest globally. Although China has diversified its exports, the U.S. remains a critical market. BCA notes that Chinese policymakers may struggle to resist boosting domestic demand by increasing reliance on American consumers, especially since they are hesitant to implement large-scale fiscal stimulus.

The U.S. is now geopolitically and politically prepared to negotiate with China on its own terms, which may explain its willingness to allow China continued access to its market.

2. China’s Current Account Balance

China’s current account balance is moving toward a deficit. The surplus that had been bolstered by pandemic-related exports is likely unsustainable, particularly with the return of overseas tourism to pre-pandemic levels. BCA notes that China nearly entered a current account deficit in 2018 before revamping its surplus due to the export surge and travel restrictions.

As of 2023, the surplus has stabilized at around $253 billion. For the U.S., reducing China’s current account surplus is a national security priority. While the Trump administration focused on the trade imbalance in goods, the U.S. has a stronger position in services, suggesting that future trade talks should aim at opening the Chinese market to U.S. service exports.

Currently, the U.S. appears ready to restrict China’s access to its domestic market, positioning this access as both “a carrot, not only a stick.”

Republican nominee Donald Trump, in his presidential bid this November, has threatened to raise tariffs on Chinese exports from 10% to as high as 60% if he secures a second term. With Trump running closely against his Democratic opponent Kamala Harris in key swing states, Beijing faces the potential of a second major trade war.