By Choosing Canadian Oil, China Strikes at the Core of America's Financial Power.

According to recent reports, Chinese sovereign wealth funds that had actively invested in U.S. corporations for decades are now withdrawing from American private equity. Since the escalation of the U.S.-China trade war, Beijing has not only halted further investments in U.S. private equity but is also unofficially restricting Chinese companies from investing in the United States. While this might be dismissed as a natural reaction in a trade war, it is in fact a strategic move by China aimed at the very core of the U.S. growth engine.

Unlike manufacturing-based economies, the United States thrives not through industrial output but through financial mechanisms. America’s economic growth is largely sustained by financial cycles: when U.S. companies generate profits, much of that capital is funneled into stock buybacks or purchases of U.S. Treasuries. This financial liquidity inflates asset bubbles, which in turn increases the wealth effect, boosting consumer spending and, ultimately, corporate revenues.

A significant portion of this capital also flows into the bond market, where it is redistributed by the government to fund key strategic sectors—such as artificial intelligence, robotics, and autonomous driving. These sectors grow rapidly, reinvest profits, and thus perpetuate the financial loop. At the center of this system lie two key elements: the dollar and U.S. Treasury bonds. These are not just instruments of financial operation but pillars of U.S. global power. China's recent moves can therefore be interpreted as an attempt to strike at the heart of America’s financial architecture.

When China ceases to invest in the U.S., it signals that it is no longer willing to support the very growth engine that could strengthen its rival in the battle for global supremacy. Redirecting capital away from the U.S. is a direct challenge to American hegemony.

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Meanwhile, another major shift is unfolding in the energy trade. Chinese oil companies have reduced their imports of U.S. crude by nearly 90%, replacing them with Canadian oil, now at record-high volumes. Historically, China’s energy dependence has leaned heavily on the Middle East and Russia. Why the shift toward Canada?

Part of this strategy is aimed at neutralizing the impact of U.S. tariffs. Currently, the United States is negotiating tariff agreements with traditional allies such as Korea, Japan, and the EU. However, the terms of these negotiations are revealing: the U.S. is demanding that its allies side with it in cutting trade ties with China. If China were to reroute its exports through these countries—effectively bypassing the tariffs—the U.S. tariff strategy would become meaningless.

Consider this: China faces tariffs of up to 245%, while Korea, Japan, and the EU face only 20–25%. This discrepancy offers China a clear incentive to seek trade detours. Hence, the U.S. is pressing its allies to impose similar levels of trade restrictions on Chinese goods.

China, meanwhile, is desperately exploring countermeasures. One such move is the large-scale importation of Canadian crude oil. This not only undermines U.S.-Canada trade alignment but also opens a door for China to expand its economic influence in North America. If Canada were to accept China’s outreach, it could benefit from a new wave of energy demand and capital inflows. However, this also risks diplomatic backlash from Washington. Nevertheless, for Canada—whose economy is under pressure from U.S. tariffs—China’s offer may be hard to refuse.

In response, the U.S. has begun targeting China’s financial credibility.

Fitch Ratings has warned that the trade war could have negative implications for China’s sovereign credit rating. This move aims to undermine China’s ability to access global capital at low cost, marking a new front in the financial confrontation.

So where does this leave the balance of power? It’s hard to say.

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Chinese factories are shutting down due to declining exports, and local manufacturers are struggling to stay afloat. Dumping inventory at low prices could provoke backlash from neighboring countries, many of which are already wary of China’s economic aggression. On the other hand, the U.S. faces its own challenges: rising inflation, asset bubbles, and growing domestic opposition to its current policy direction.

At K3-Lab, we continue to believe that the structural edge still lies with the United States. Despite current turbulence, the pendulum is likely to swing decisively in America’s favor once the global financial order reconfigures post-crisis. We will expand on this perspective in a future report.