A Rollercoaster of a Year

For those interested in current affairs and history it is fun but perhaps foolish to try and judge what current events and what time periods really contribute to a meaningful impact or turning point in human history.  Events which at the time wholly consumed governments and populations such as the covid pandemic can now seem a distant memory to many and best forgotten by others.

But there is a strong case that 2025 will be seen in years to come as a major turning point in the global geopolitical balance especially the rivalry between the United States and China.  The return of Donald Trump to the Whitehouse has clearly been pivotal in that shift but that isn’t the sole factor, China has asserted itself and shown unexpected resilience.

As US tech billionaires lined up in the front row of Donald Trump’s inauguration the same day China’s Deepseek released its R1 AI chatbot.  This open-source AI tool had been trained at a fraction of the cost of the US company equivalents but was broadly on par in terms of performance.  How was this possible?  Wasn’t China some years behind the US in the AI environment?  Soon Deepseek became one of the most popular downloads on the App store and it was not without reason called a sputnik moment, i.e. a wakeup call, to the US tech giants that China wasn’t content with second place.  What was surprising was that Deepseek was a private venture and relatively unknown, not the product of state planning and largesse but of clever, geeky engineers innovating.

Trump’s second term has been a dramatic departure from his first.  In Trump I he was surrounded by level headed, often professional and experienced people who reined in Trump’s worst excesses, this time around he has surrounded by ultra-loyalists who have come with a well thought out agenda to remake the Federal government broadly following a plan called Project 2025 which during the campaign Trump denied knowing anything about.

One plank of the administration which is truly Trump’s is the tariff war.  His “Liberation Day” tariffs which imposed double digit level tariffs on all countries crashed the stockmarket and had a global impact on literally everyone involved with any economic activity.  The initially announced tariff levels did not in general come into effect and countries around the world rushed to negotiate better deals with Trump.  Eight months on the Supreme Court has yet to rule whether Trump’s tariffs are even legal so the entire tariff war may yet come to nothing or at least need to be completed restructured.

What is noteworthy about the tariff war process is that only China held firm and went tit for tat with the US when it came to trade restrictions.  The EU, home of the largest single market talked tough to begin with and decried the Trump measures but in the end folded and largely went along with the terms set by the US.  As China pushed back Trump responded and tariffs jumped and jumped to truly unworkable levels of 100+% or more.  But China, unlike the EU had been prepared for tariffs since the first administration and was able to respond with new restrictive measures on rare earth elements which are essential for almost all modern technologies.

The EU had assumed that Trump’s America was a four-year aberration and that Biden’s return was back to business as usual.  They fundamentally saw America as their friend and ally and couldn’t bring themselves to believe that America would turn on them.  The Chinese had no such illusions if for no other reason they never saw themselves as friends or partners of America.  The entire American ideal was a threat to single party rule.  However close economic ties became the CCP leadership never trusted America and indeed saw the American led order as a constraint on China’s actions.

China’s decision to introduce a rare earth element licencing regime which not only controlled sales but also end usage anywhere in the world soon brought American and Chinese negotiators to the table.  Tariffs fell, restrictions were postponed and some businesses at least continued.

Trump succeed in lowering the volume and value of Chinese exports direct to the US but his goal to curb China’s export engine failed.  In November China announced a trillion US$ export surplus for the year and many exports goods ended up being transshipped through third countries on the way to America or were dumped below cost wherever they could.  But China’s export surpluses have changed as well.  While it remains a source of cheap and largely disposable goods it has become the world leader in electric vehicles.  China may have failed to build a good internal combustion engine car it is a world leader in electric vehicles and now boasts the world’s fastest production car, the BYD Yangwang U9 Xtreme.

Domestically Trump has overseen and allowed a gutting of Federal funding of core research across academia.  The cuts which have affected all areas are truly nonsensical.  The US’s leadership position in many areas of cutting-edge research and its ecosystem of universities, private capital and business acumen have allowed in to turn laboratory breakthroughs into commercial successes.   The clampdown on research has been implemented in parallel with immigration restrictions which have made both students and academics reevaluate whether America is where they want to live and work.  In contrast China continues to promise generous funding package and research opportunities to its own nationals who want to return and to attract a growing number of non-Chinese researchers.  The numbers remain small but there is a clear pattern and one which can’t be ignored when funding is either limited in the West or in the case of America there is a deliberate effort to stymie their own universities.

A final measure for the year and a very limited one is that even after the volatility to Trump’s tariffs US stocks are up around 17% for the year.  Some companies have made remarkable gains especially since the lows of April and Nvidia, the lodestone of AI development was the first ever 5 trillion US$ company earlier this year.  But China’s broad based CSI300 is up over 20+% and its Nasdaq-like ChiNext index is up over 50+%.  Not only have Chinese stocks outperformed US names but the MSCI All Country world (ex-US) index has risen nearly 30%

Not all going China’s way

Based on this list it would be easy to conclude that 2025 was the pivotal year when the geopolitical balance changed.  The Trump administration complete disdain for domestic and international norms has without doubt caused long term allies to question the reliability of the US as both and economic and security partner.  Europe, both the EU and the UK, are struggling to fully understand the implications and the new requirements of a more isolationist and unreliable US.  But while the US has made been busy tearing up norms and undermining the post-WW2 security and trade architecture has China really benefited?

The year was also notable for the much less appealing side of China’s rise.

In the UK the scale of Chinese influence has become all too apparent.  This column has already written of the access Chinese operatives had with the former Duke of York.  The collapse of the Cash & Berry spy case showed how Chinese influence reached into the heart of Westminster and a recently published book, All That Glistens by Martin Thorley has laid bare the decades long influence operations where UK politicians and business elites have been manipulated by Chinese United Front work.  Thorley’s book also illustrates an important point that the many economics promises which Chinese companies made to the UK made largely failed to materialize.  China just isn’t a good economic partner.

After nearly four years of war Trump willingness to abandon Ukraine and their European allies, and side with Russia continues to horrify European leaders but it must not be forgotten how little China has done to bring about any ceasefire or peace plan.  China has continued to fully support Russia with a whole range of economic and diplomatic measures.  To the Chinese side the Ukrainian war is important as a way to degrade the Western alliance and provide them with greater freedom to attain their own geopolitical goals.  In their zero-sum-game outlook on life any weakness of America and NATO is a benefit to them regardless of the death and destruction in Ukraine.

If China is missing diplomatically in trying to bring about peace in Ukraine it too has been missing in action in other areas.  The Chinese have remained absent in the diplomatic moves around Gaza and while they no doubt want to avoid direct engagement in the Middle East, they seem unable or unwilling to calm tensions closer to home between two close economic partners, Thailand and Cambodia.  It is easy to complain about America’s role as the world’s policeman and the many missteps it makes in that role, yet a Chinese dominated world looks like one of ongoing conflict between states.

China’s unwillingness to try and limit the aggression of other states is of course because it wants free rein to take over Taiwan.  Xi had made no secret of taking over Taiwan as an essential part of realizing his rejuvenation of the Chinese people and he certainly isn’t willing to rule out force to do it.  At this very moment PLA forces are conducting drills, or perhaps better described as a rehearsal for a full blockade of the island.  China wants any Taiwan invasion to be seen as a purely domestic Chinese matter but any defence of the island will bring in other actors and lead to a larger conflict.  That must be an existentialist worry for a number of countries in the region.

China might have gone toe to toe with America when it came to tariffs but even it’s successes may turn out to be short lived.  Its proposed rare earth element restrictions highlight just how far China wants to exercise control in global supply chains.  China wants to right to control not only who sells and how much but wants to approve how these elements are used and by whom.  That control reaches right into the boardrooms and factory floors from Tokyo to Los Angeles and beyond.  That the PRC then boasts of a trillion US$ trade surplus must surely fuel panic in many developing and developed nations as to how they are to build or maintain their own manufacturing industries.  For Chinese industries to succeed other countries must effectively fail.  That isn’t win-win growth, nor is it a sustainable model for economic development.

In 2025 China’s strengths were very clear.  Trump certainly treats it as a superpower peer to America, and it was uniquely positioned to push back on in the trade war.  Yet the year importantly saw a less appealing side of the Chinese state.  This should not have come as a surprise to political and business leaders, but it is one which many still don’t fully want to face.  The PRC is an aggressive power fully supporting Russia active in threatening Taiwan and engaged in a huge military buildup when it faces no direct military threats and determined to undermine the global economic system solely to benefit Chinese industries.

Their intentions are clear the question is will global leaders from both developed and developing countries at last start to respond to the Chinese threat?  That does not mean a decoupling from China, that it wholly unworkable but allowing further Chinese abuse of trade rules which the PRC refuses to abide by isn’t a viable strategy.  China has many economic strengths but that massive trade surplus means it is vastly reliant on the rest of the world to buy its goods and allow it to play its economic games.  This year exposed as perhaps never before China’s intentions.  It’s time the playing field was rebalanced.