The Dragon’s Calculus: How China Fortified Itself for a Trade War

The world is a big machine—a complex, interconnected system of incentives, power dynamics, and economic flows.

To understand it, we must step back, observe the patterns, and deduce the principles that govern its motion. From analyst to global trader to private equity this is the lens through which I’ve long viewed global markets, and it’s also the lens that reveals China’s remarkable transformation over the past decade. Simultaneously, there’s a psychological and moral dimension to this story—a nation taking responsibility for its destiny, learning from pain, and building economic resilience in the face of chaos. China’s moves since the first Trump administration reflect a deliberate, strategic effort to diversify away from U.S. dominance and the USD-centric trade system. They’ve seen the writing on the wall, and they’ve acted decisively with urgency and foresight. Let’s unpack how they’ve done it, why it matters, and what it means for the future.

Lessons from the First Trump Era

Back in 2018, when the Trump administration slapped tariffs on Chinese goods and ignited a trade war, China got a wake-up call, and did not miss it. The U.S. as it has done time and time again throughout history, against real or perceived threats wielded its economic might—its control over global trade and financial networks and the dollar’s status as the world’s reserve currency—like a club beating a panda bear. For China, it was a stark reminder: significant dependency on a single power is an unacceptable vulnerability. Ray Dalio’s principle of “expecting the unexpected” applies here—China realized it couldn’t assume perpetual stability in its relationship with the U.S. The trade negotiations that followed were bruising, exposing how much leverage the U.S. held over China’s manufacturing and export-driven economy.

But pain is a great teacher, it forces you to confront reality in the moment, to take stock of your weaknesses, and to act decisively. China didn’t sulk or retreat into victimhood. Instead, it internalized the lesson and doubled down on a strategy to remedy it, reliance on the USD and American goodwill was a risk they could no longer afford. In the subsequent years confirmation of their position continued to be reinforced, marked by events like the COVID-19 pandemic, the removal of Russia from SWIFT in 2022, and escalating geopolitical tensions—only reinforced this view. Russia’s SWIFT exclusion, in particular, was a thunderclap, especially as China’s mighty economic rise was so interconnected to the western and particularly US financial market integration. If the West could weaponise the global financial system against one adversary, it could do so against another. China saw the future: a world where economic sovereignty might mean survival.

Diversification as a Principle of Strength

China’s response has been methodical, rooted in first principles of economic resilience. Diversification became the priority—diversification of trade partners, currencies, and strategic assets both in terms of physical trade assets (ports and infrastructure) and also financial assets like gold. This wasn’t about ideology; it was about survival in a multipolar world.

First, China accelerated its outreach to emerging economies. The Belt and Road Initiative (BRI), launched in 2013, took on new urgency. By pouring billions into infrastructure across Asia, Africa, and Latin America, China secured market access and preferential treatment from nations eager for development. These relationships aren’t just transactional—they’re strategic. Emerging market growth is significantly outpacing the western economies. When the U.S. flexes its muscle, China has alternatives: markets that don’t bow to Washington’s whims.

Second, the government doubled down on key industries. Take the electric vehicle (EV) sector—a crown jewel of China’s industrial policy. Subsidies, tax breaks, and state-backed innovation have turned companies like BYD and NIO into global players. In 2024, China produced over 60% of the world’s EVs, exporting them to Europe, Southeast Asia, and beyond. This isn’t just about economic growth; it’s about reducing reliance on Western tech and building leverage in a sector the world can’t ignore. If trade wars escalate, China holds cards the U.S. can’t easily counter.

The BRICS Gambit: A New Economic Order?

Then there’s BRICS—the alliance of Brazil, Russia, India, China, and South Africa. What began as an economic acronym has morphed into a geopolitical counterweight. Since the first Trump era, China has pushed to expand and deepen this bloc. BRICS has grown from five members to ten, with Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates joining in 2024. Indonesia has already joined this year, as the first member in 2025, Thirteen more countries—Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Uganda, Uzbekistan, and Vietnam—have been invited as “partner countries,” signaling further expansion on the horizon.

This isn’t just hedge in my opinion, its whole new world coming down the tracks. BRICS now represents 3.5 billion people or 45% of the world’s population, and 28.5 trillion dollars or 28% of global GDP, these numbers rival the G7’s clout. China’s leadership within the bloc is undeniable: it accounts for 70% of BRICS’ total GDP. Through initiatives like the New Development Bank, China is fostering financial independence from Western institutions like the IMF and World Bank and winning a lot of friends in the process and market access. But the real game-changer is the push for non-USD trade. Intra-BRICS trade surged 56% between 2017 and 2022, and Western sanctions on Russia only accelerated the shift to local currencies. By 2023, 70% of Sino-Russian trade was settled in yuan—a trend now spreading to other members.

Gold: The Ultimate Insurance Policy

Here’s where the story gets fascinating and ominous. particularly China but also other BRIC’s nations have been stockpiling gold at a staggering pace. Since late 2023, China added over 300 tons to its reserves, bringing its total to more than 2,500 tons by early 2025. To labor the point, this isn’t a one-off; it’s a pattern across BRICS. Russia has boosted its gold holdings to over 2,300 tons, India to 850 tons, and even smaller players like Brazil, South Africa and Egypt are buying. Collectively, BRICS nations have increased their gold reserves by nearly 20% since 2020.

Why gold? Most financial analysts would call it a return to first principles: in times of uncertainty, hard assets trump paper promises. At best, this signals China and BRICS see volatility ahead—currency fluctuations, trade disruptions, or sanctions. At worst, it’s a prelude to a seismic shift: moving central bank reserves away from the USD toward gold or a new trade currency. The dollar’s dominance, 90% of global forex transactions and 84% of cross-border trade—relies on trust. If that trust erodes, and the US is doing its utmost to erode as much trust and certainty as possible right now, gold becomes the fallback. Recent reports suggest that China has stopped accepting dollars for some trade deals, opting for gold or yuan instead, a claim that aligns with its broader de-dollarization push.

Saudi Arabia and the Petroyuan: A Dollar’s Nightmare

Now, consider Saudi Arabia. Historically a linchpin of the petrodollar system, it’s tilting toward China. In 2023, one-fifth of global oil trades bypassed the USD, a trend driven by Sino-Saudi deals. By late 2024, Saudi Arabia was settling significant portions of its oil exports to China in yuan—a shift cemented by a $7 billion currency swap agreement signed in November 2023. This isn’t just economics; it’s geopolitics. Saudi Arabia’s flirtation with BRICS (it’s yet to formally join but attends summits) and its participation in Project mBridge—a BIS-led digital currency platform—suggests a willingness to explore alternatives to the dollar-based oil market.

This is a dagger to the USD’s heart. The petrodollar system, born in the 1970s, underpins American economic power. If oil—a $2 trillion annual market—starts trading in yuan or a BRICS “Unit” currency (a gold-backed concept floated at the 2024 Kazan summit), the dollar’s reserve status weakens. Demand drops, U.S. borrowing costs rise, and sanctions lose their bite. It’s not imminent, but it’s plausible and will be a slow bleed rather than a sudden collapse.

Digital Currencies and Beyond

China’s not stopping at gold or BRICS. It’s pioneering digital currencies—another layer of resilience. The digital yuan, rolled out in 2020, is now used in cross-border trials with Thailand, the UAE, and Saudi Arabia via mBridge. This isn’t about replacing cash; it’s about bypassing SWIFT and Western financial chokeholds. Russia’s SPFS, India’s SFMS, and Brazil’s Pix show BRICS isn’t alone in this quest for redundancy.

Add to this China’s trade surplus $1 trillion in 2024 and its 5% GDP growth despite global headwinds. The numbers speak: China’s economy is a fortress, built to weather storms. Its “go out” strategy—deepening ties with Africa, Latin America, and ASEAN—ensures it’s not isolated if the West turns hostile.

Order Out of Chaos

So, what’s the takeaway? From a financial perspective, China’s moves are a masterclass in managing risk. They’ve studied history—empires rise and fall, currencies falter, trade wars flare—and acted accordingly. Diversification, industrial strength, BRICS expansion, gold hoarding, and yuan-based oil trades are interlocking pieces of a strategy to insulate against U.S. power and USD volatility.

From an ideology perspective China’s taken responsibility for its fate. It’s not waiting for the world to accommodate it; it’s shaping the world to suit its needs. There’s a psychological toughness here, a refusal to be a pawn in someone else’s game. The West’s sanctions on Russia, the chaos of Trump’s tariffs, the uncertainty of a multipolar era, these are the chaos China’s ordering itself against.

What Lies Ahead?

Best case scenario, China’s preparing for turbulence—a trade war return under Trump 2.0, or a fractious global economy. Worst case, it’s laying groundwork for a post-dollar world, where BRICS currencies or gold redefine power.

For the U.S., this is a wake-up call… are they going to pick up? The dollar’s reign isn’t eternal—many empires have faded and died.
For individuals, it’s a reminder: in chaos, those who prepare thrive. China’s dragon is rising, not out of malice, but necessity. The world’s machine is shifting gears—watch closely, and act wisely.