President Xi Jinping’s government is showing signs of increased sophistication when it comes to geo-economic strategy. In an effort to avoid isolation by the White House in the global trading system, Beijing has come up with some new tricks.

Back at the end of Donald Trump’s first term, China sealed a landmark investment deal with the European Union in what appeared to be a move to encourage it (see last week’s newsletter) to serve as a neutral player rather than US ally. But the EU shelved its ratification after Beijing sanctioned several European legislators in retaliation for the bloc’s sanctions against China over human rights concerns.

At the time, China seemed to prioritize a tactical conflict over a strategic one. Another option would have been to ignore the EU’s limited sanctions and keep focused on ratifying the big economic agreement. Fast forward to this week: Beijing just lifted the penalties on those same European lawmakers. The window might have closed for the old investment deal, but the move offers a new look for China as it seeks partners against the US.

This new approach — also evident in a move last month with regard to South Korea, as detailed below, suggests an even tougher job for Trump’s newfound trade-negotiating lieutenant, ex-hedge fund manager Scott Bessent. The Treasury secretary has laid out a vision of doing deals with American trading partners as a means of stepping up pressure on China. Now, he and Trump may need to factor in a more sophisticated opponent in Beijing.

US Treasury Secretary Scott Bessent Photographer: Al Drago/Bloomberg

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China is also moving to improve ties with South Korea, Asia’s fourth-largest economy. Relations went through a rocky patch in 2016 when Seoul — concerned about threats from China’s ally North Korea — allowed the US military to deploy a missile defense system called Terminal High-Altitude Area Defense, or THAAD.

Beijing blocked Chinese tour groups from visiting and forced Korea’s Lotte Shopping to suspend operations in 87 of 99 China hypermarkets for alleged violations of fire-safety rules (Lotte eventually exited the country.) The Communist leadership also imposed a so-called “K-wave ban,” restricting South Korea’s most popular export of late: K-Pop. 

That ban is now easing: for the first time in nearly a decade, a band comprised of Korean nationals is set to perform in mainland China. The group, Epex, is gearing up for a concert on May 31.

The band EPEX Photographer: MBCPLUS/ImaZins

China’s approach toward US allies and partners isn’t all about playing nice, though. The Commerce Ministry last month warned that it will “take reciprocal countermeasures” against countries that do deals with the US at the expense of Beijing’s interests. It appears to be a direct response to Bessent’s strategy, especially with regard to Asian economies.

It’s a message well understood in capitals around the world. Japan, which had its own brush with Chinese coercion when Beijing cut supplies of rare earths in 2010, intends to push back on any US effort to bring it into an economic bloc aligned against China. That’s according to current and former Japanese government officials speaking to Bloomberg last month. 

Even the illiberal government of Trump pal Viktor Orban made clear this week it won’t loosen economic ties with China. Economy Minister Marton Nagy told reporters in Budapest that Hungary has “a very pragmatic position.”

China’s leadership has been (somewhat ironically) portraying itself as a defender of the rules-based economic order in the face of unilateral bullying by Trump. How much influence Xi and his team can bring to bear on third parties around the world remains to be seen, however. There are some enormous obstacles.

Asked about China’s evolving approach toward geo-economic competition with the US, the most recent American ambassador to the nation, Nicholas Burns, said, “The new part is this: The Chinese have been publicly suggesting to the Europeans, the Japanese, the Koreans that they should gang up against President Trump.”

Nicholas Burns  Source: Bloomberg

But it’s a mistake for Beijing to “think that the Europeans will flip when China is providing 90% of the microelectronics to the Russian defense industrial base,” he said. “That’s an existential issue for Europe.” Japan and South Korea, too, are not going to get on board, he said.

Burns, answering questions after delivering an annual lecture on China at Harvard University’s Fairbank Center for Chinese Studies, also highlighted that the root of Washington’s trade war with China is the “disruptive role” Beijing has played in global trade — something that affects American partners, too.

A diplomat who served in both Democratic and Republican administrations, Burns said a key lesson from his time as ambassador was “be nice to allies.” That just “multiplies our power and influence.”

With China increasingly set on finding its own teammates, it raises the stakes for Bessent and Trump to move past tensions with allies and get those deals done—if they can. —Chris Anstey