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The start of 2025 has been good for China and its reputation as a high-tech innovator. The unveiling of the Chinese-made artificial intelligence (AI) tool, DeepSeek, caused consternation on the US stock exchange and from potential competitors in Silicon Valley.
Chinese firms are increasingly at the forefront of key high-level technologies such as electric vehicles (EVs) and AI, as reflected by the success of China’s electric vehicles, BYD, and now DeepSeek.
These moves have made the Chinese economy more self sufficient than it was during Trump’s first term, and has made Beijing more confident about pushing back politically against Trump.
This is all underlined by a high-level meeting hosted by President Xi Jinping at China’s Great Hall of the People this week. He told the heads of China’s leading tech firms it was time for them “to give full play to their capabilities” and spoke of it as a patriotic duty, according to official accounts.
This comes as China starts being hit by US tariffs of an additional 10% on its goods, as well as a slew of anti-China rhetoric from the Trump government.
But China’s high tech industries are on the up, and this is a significant boost for Xi. For instance, in January this year, sales of the Chinese EVs exceeded those of Tesla in the UK for the first time.
Part of the Chinese EV’s success could be attributed to a backlash against Tesla’s co-founder Elon Musk, after he started backing far-right parties around the world.
Another factor that Chinese high-tech goods have in their favour are lower prices. Prices for Chinese EVs start at £7,697 in the UK, for example – much lower than Tesla’s Model 3 at £25,490.
This price difference will be significant in the latest phase of the Sino-US trade war, particularly in countries struggling with a cost-of-living crisis. China is also hoping its cheap prices and tech innovations will help it find new trading allies to counteract Washington’s proposed tariffs.
What China has to offer
China is a fast-growing economic and political power and is expected to account for nearly a quarter of the global economy by 2030.
The success of BYD and DeepSeek comes at a time where Beijing feels more prepared for Trump’s tough tariffs and tension with Washington, than it did in his previous term. China has responded to Trump’s threats with reciprocal tariffs on US coal and liquefied gas, as well as a ban on the export of critical minerals. These are a key component for many US military technologies varying from communications equipment to missiles.
China accounts for 72% of all rare earth imports for the US. Such measures contrast with the cautious approach taken by Beijing in 2017, when US tariffs during Trump’s first term met little retaliation from Beijing.
The changes in China’s tactics can partly be attributed to what Beijing learned from the previous trade war. In 2017 there were weaknesses in the supply chains of many Chinese firms, most notably ZTE and Huawei.
They struggled when Washington pressurised its own chipmakers and those of allied states, such as Britain’s Arm, to stop sales of semiconductor technology to China. As a result, finding long-term alternatives to US technology in the supply chain has become a key priority for Beijing.
Xi has recognised the value of firms such as Huawei and BYD in aiding China’s wider technological (and geopolitical) ambitions, most notably as part of the Made in China 2025 strategy, a national strategy to make China a leader in high-tech technology.
Read more: DeepSeek: how China’s embrace of open-source AI caused a geopolitical earthquake
Traditionally, China was seen as the home of cheap, low-quality goods, which had been central to its development in the 1980s and 1990s. But many of companies producing these products are increasingly moving to south-east Asia to take advantage of lower labour costs.
However, Chinese industries are now gaining ground in fields that have traditionally been the preserve of developed nations. For instance, Huawei has developed a spin off, Honor, which has gone from producing cheap, simple smartphones and into AI technology.
Meanwhile, the success of BYD and DeepSeek have demonstrated that China is, in some ways at least, far better placed for a prolonged trade war. Beijing is feeling more confident, which explains its willingness to push back against Washington this time.
So the White House will have to deal with higher prices for US goods going into China, as well as additional trade spats with the EU, Canada and the UK. It might be a bumpy ride for US consumers.
How Beijing responds and its new-found clout may determine the course of this new trade war, and potentially add to its long-term standing in the world.
Tom Harper does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
