'The script has been flipped.

For much of this year, it was Washington that held the whip hand in its relationship with Beijing. President Trump imposed tariffs so high they nearly amounted to an embargo and tried to recruit allies in an effort to reroute supply chains away from China. Yet in a sudden reversal, Trump is now signaling a desire for a grand bargain, seeking a summit with Xi Jinping to strike what he hopes will be “a very fair deal.”

Trump’s pivot toward rapprochement, however, is being met not with reciprocity, but with a robust pushback from Xi's leadership. As the U.S. has loosened some technology restrictions, Beijing has tightened its own controls and, in a telling move, heightened pressure on American tech giant Nvidia to lobby against a bill designed to prevent high-end U.S. chips from being smuggled to geopolitical foes like China.

Most notable of all was the readout from a Politburo meeting presided over by Xi last week, which called for “seizing the strategic offensive in a fiercely competitive world.”

In other words, after letting the U.S. dictate the terms of the relationship for months, the Chinese leadership believes it is now its turn to play offense.

Driving Beijing’s newfound confidence is a realization that its stronghold on rare earths has given it enormous leverage over Washington. A few short months ago, U.S. automakers like Ford had to scale back production after Chinese authorities slow-walked approvals of export licenses for these critical minerals.

Faced with intense pressure from some U.S. businesses, the administration blinked. In June, it walked back some export controls involving jet engines and chip-design software. Last month, it took the more dramatic step of reversing a ban on sales of Nvidia’s H20 chips to China.

For Xi, Washington’s retrenchment only creates opportunities for Beijing to keep pushing. And that means his negotiators will likely try to drag out the process for as long as possible, stringing their U.S. counterparts along with tactical buy-America promises while they press their strategic advantage.

But this American concession was not the result of an unforeseen vulnerability. Rather, it was the predictable outcome of a crisis decades in the making. America’s dependency on China for critical minerals is not some new revelation. Japan learned it the hard way 15 years ago. For all the cycles of alarm, the blue-ribbon panels and the promises of “supply chain resilience,” the results have been meager.

Risk for Beijing

While Washington is in for some serious reflection, the risk for Beijing is that a burst of geopolitical cockiness will blind its leadership to the gathering economic storm on its own shores.

Strikingly, the official account of the July Politburo meeting, typically focused on economic issues, omitted any mention of the years long—and still-worsening—property crisis that has severely strained household as well as government finances. Ditto any mention of problems involving ever-rising debt levels and youth unemployment.

“Key economic indicators performed well,” the Politburo readout states.

While it’s true that Trump’s tariffs haven’t yet hit the Chinese economy hard, as Chinese exporters continue to reroute exports to the U.S. via other countries, even the official data are starting to paint an increasingly dismal picture.

For instance, recent statistics from the Ministry of Finance show a Chinese government operating in a fiscal straitjacket. Even as core tax revenues provide a fragile floor, its other income streams are evaporating. Such constrained government finances could lead to cutbacks on already limited social-welfare payouts, potentially further dampening the very consumption the government has repeatedly vowed to support.

At least for now, however, Beijing appears intent on looking the other way.

It’s worth noting how that is translating into discussions with the Americans. Following the latest round of high-level meetings in Stockholm last week, Treasury Secretary Scott Bessent told reporters: “We understand their agenda much better.”

“They believe their economy is in good shape,” Bessent said, referring to the Chinese negotiation team, led by Xi’s right-hand man on the economy. “They believe that they have a robust consumer economy, and they do not believe that they have a manufacturing surplus that is making its way into the rest of the world, which I disagree with.”

Bessent’s disagreement, however valid, may now be irrelevant. In a world where Beijing believes it holds the most valuable cards, Washington’s objections risk becoming mere background noise—a frustrating reality born from decades of American inaction.'