Will the U.S.-China Hegemonic Conflict Escalate into War? Or Reach a Strategic Deal?

There’s no denying that the U.S.–China hegemonic struggle holds the potential to escalate into open confrontation. However, judging by recent developments, we must also keep the door open for the possibility of an agreement. Both sides are, at least outwardly, showing signs of adjusting their rhetoric and policies in ways that suggest a cautious search for common ground.

This shift is evident in recent public statements by key Chinese officials.

Deputy Governor of the People’s Bank of China (April 28, 2025):“For a long time, China’s foreign exchange reserves have been managed with a focus on security, liquidity, and value preservation. Our portfolio is effectively diversified, and fluctuations in any single market or asset have limited impact.”He further emphasized China’s efforts to “enhance the resilience of the forex market, strengthen management capabilities, and prevent excessive volatility in the renminbi exchange rate.

”Finance Minister Lan Foan (April 28, 2025):“China will adopt a more proactive and effective macroeconomic policy. Despite the complex external environment, we remain committed to further opening up our ultra-large domestic market and contributing stability and momentum to the global economy.”

What stands out here is China’s noticeable restraint regarding currency devaluation. In theory, weakening the yuan could offset the impact of U.S. tariffs and boost exports. Yet China is choosing not to take that route. Instead, it is keeping key interest rates (such as the 1-year and 5-year LPR) unchanged — deliberately minimizing volatility in its exchange rate.

This aligns strikingly with statements made recently by former U.S. President Donald Trump. On April 26, Trump said:

“What we wanted was for China to open up. Let us in. Let us work there. That was all we asked for. We almost had it, but they backed off.”

Put simply, the U.S. wants to produce more domestically while pressuring China to open its consumer markets to American goods. Surprisingly, China seems to be signaling a cautious willingness to comply — albeit on its own terms. This convergence of interests is a direct result of the shifting geopolitical and economic dynamics facing both nations.

1. China Has Nowhere Left to Sell

For decades, China thrived as the “factory of the world” under a U.S.-led global system. Its vast labor pool, efficient infrastructure, and competitive exchange rate made it the perfect supplier for global demand. But this system — designed by the U.S. — eventually reached its limits.

China’s rapid rise created structural problems for America: ballooning trade deficits, rising national debt, and the hollowing-out of its manufacturing base. To counter this, the U.S. under Trump launched a tariff war during his first term. Now, in a second Trump era, this pressure is intensifying.

China once tried to bypass tariffs by shifting production to Vietnam, Mexico, and Canada. But in Trump’s new framework, even those indirect routes are being sealed off. Countries like South Korea, used as re-export hubs, are now under scrutiny in U.S. trade negotiations.

As a result, China’s export earnings — and dollar inflows — are under serious strain. This leaves only one viable path: boosting domestic consumption.

And that’s precisely what the U.S. wants.

2. Why Does the U.S. Want China to Become a Consumer Economy?

Let’s be clear: Trump does not want decoupling from China in the literal sense. That would be disastrous for the U.S., which is transitioning from a consumer economy to a producer economy. But producers need buyers — and the ideal buyer, in America’s view, is China.

Rather than trying to isolate China, the U.S. appears to be pushing for a role reversal within a redesigned global system: China would shift from the world’s factory to the world’s consumer. This is a scenario the U.S. is strategically crafting — not to eliminate China, but to reposition it.

If successful, this shift would offer the U.S. multiple strategic benefits:

• Weakening China’s manufacturing base → limiting its military capabilities

• Opening China’s market → increasing U.S. corporate profits

• Sustaining China’s dollar reserves → stabilizing demand for U.S. Treasuries

• Re-centralizing global supply chains → under U.S. influence

If China adopts this new role, it strengthens — not weakens — American hegemony.

3. Can China Actually Make the Shift?

Here lies the crux of the dilemma.

Becoming a consumer economy is arguably a necessary transition for China as well. Projects like the Belt and Road Initiative depend on it. And greater domestic consumption could allow China to exert more influence across developing regions.

However, the timing may be off.

Chinese households still overwhelmingly prefer saving over spending. The collapse of the property market has deeply eroded consumer confidence. Furthermore, a large portion of the Chinese workforce remains employed in export-linked industries. If those industries shrink, consumption could contract further — not grow.

And although Chinese policymakers understand America’s goals, it’s unclear whether they are truly willing to play the role the U.S. has designed for them.

4. What Does This Mean for Investors?

Both the U.S. and China are now trapped in their own respective dilemmas.

U.S. tariffs are backfiring in the form of inflation and weakening domestic consumption. That pressure, in turn, is mounting on Trump’s political capital.

While both sides may realize the need for an eventual agreement, such a deal won’t come easily. The complexity of the situation has created a multilayered, high-stakes strategic puzzle.

Under a second Trump administration, markets may not merely be volatile — they may be violently cyclical, marked by extreme ups and downs.

Smart investors must see through the noise.

“China will survive by consuming. The U.S. will thrive by producing.”

What we are witnessing is not a temporary trade dispute, but a systemic redesign of global capitalism. That means long-term investment strategies tied to macro shifts are essential.

Short-term predictions and reactive trading are unlikely to yield meaningful gains.Now is the time to anchor your capital in trends shaped by the broader arc of economic transformation.