US-China Economic Rivalry Transforming Into A Battle For Leverage

Donald Trump's authorization to resume the sale of Nvidia's H200 AI chips to“approved customers” in China was a calculated gamble. By giving Chinese tech giants access to a less advanced generation and embargoing the cutting-edge Blackwell chips, he intended to exert US influence on China's AI ecosystem and strengthen his bargaining position against Beijing in broad trade negotiations.

But by capping H200 deployment in the mainland and using them to train AI models, China continues to support domestic AI growth while benefiting from American technology and avoiding long-term dependence on Washington, effectively blunting the leverage Trump is seeking.

Beijing's perception that the US is trying to constrain China's technological advancement has only accelerated its determination to build a self-reliant semiconductor industry. Nvidia CEO Jensen Huang himself has blamed US withdrawal from the Chinese market for helping fuel China's semiconductor industry.

A White House report, released in August and entitled“The Great Transshipment Scam”, accuses Chinese exporters of routing goods through more than 40 countries to evade US tariffs.

The report reflects the limits of Washington's efforts to reduce its economic dependence on China, revealing that while the United States may erect barriers to curtail the influx of Chinese goods into the country, it cannot prevent China-linked supply chains from adapting.

The report itself acknowledges that some of the shift stems from“legitimate changes” in production, investment and sourcing. This indicates that not every China-linked product reaching the United States through a third country represents tariff evasion and that companies are genuinely moving production in response to geopolitical risks.

Recent research by the Peterson Institute of International Economics, a Washington-based think tank, demonstrates that Chinese goods and services, despite years of US tariffs, remain deeply woven into US imports from third countries.

While tariffs have reduced direct bilateral trade, they haven't eliminated Chinese inputs across global supply chains. A Nikkei Asia survey also found that Chinese companies had expanded their global market share despite tariff barriers.

At the same time, China remains connected to American demand. Even as US tariffs and trade barriers have curtailed bilateral trade, Beijing's exports of electronics, computers and circuit-board assemblies to neighboring Asian countries have increased.

As much of this production is tied to the US AI boom, it has allowed Chinese manufacturers to benefit indirectly from Washington's AI investments. This does not necessarily mean that Chinese goods are being illegally routed into the United States; rather, it emphasizes that the underlying trade relationship remains intact.

With studies already showing that Chinese inputs enter the US through intermediaries such as Vietnam and Mexico, the Trump administration appears to have realized that complete commercial divorce between the world's two biggest economies in the foreseeable future isn't realistic.

Its new approach appears to move away from outright decoupling toward extracting economic concessions from China, such as securing its commitment to address US concerns regarding critical minerals supply chains, purchase Boeing aircraft and restore market access for US farm produce.