Bilateral trade and investment flows are the most reliable indications of the current state and likely future directions of U.S.-China relations.

Last year, the U.S. trade deficit with China declined 31.6 percent from 2024, with Chinese exports to America falling 29.7 percent and U.S. exports to China contracting 25.7 percent.

The total U.S.-China trade in 2025 went down an impressive 29 percent.

That declining trend in U.S.-China trade accelerated considerably at the beginning of this year.

In the first two months of 2025, the U.S. trade deficit with China was cut 55.2 percent from the year earlier, with Chinese exports to the U.S. declining 45 percent and U.S. sales to China shrinking 20 percent. The total bilateral trade fell 40 percent.

Based on data for the first two months of this year, China’s trade surplus with the U.S. was well below surpluses recorded by Vietnam and Mexico. That has raised suspicions that China may be using those two countries as transshipment points in U.S. trades.

Another issue that could be raised is that this fast and very large U.S.-China trade adjustment happened at the expense of U.S. exports to China, which have remained at one-third of China’s sales to the U.S.

Trade and flammable security issues

But a much more important problem is that trade relations are now at a standoff where the U.S. controls China’s access to American semiconductor technologies while China has a quasi-monopoly over critical rare earth minerals.

That conflict is at the core of U.S.-China strategic competition. Occasional workarounds are in place, but trade problems will remain one of the problems the forthcoming summit in Beijing on May 14-15, 2026, will sidestep, gloss over or simply agree to disagree.

A similar outcome is a near certainty on several crucially important political and security issues.

The status of Taiwan as a self-governed island is a perennial question of “strategic ambiguity” for the U.S. and a crystal-clear case for China ever since the U.S.-China Shanghai Communiqué was signed on February 27, 1972.

According to Beijing, Taiwan is a province of China. Consequently, Beijing considers that Washington’s official relations with Taipei are a flagrant interference in China’s internal affairs. Likewise, U.S. weapons sales to Taiwan are seen as gross violations of China’s sovereignty and territorial integrity.

Washington supports Taiwan’s status quo and opposes any unilateral change to the island’s self-governed administration. Recognizing that Beijing is likely to take over Taiwan, the U.S. is determined to prevent that by (a) providing Taipei with self-defense arms, (b) increasing American military presence in East and South China Seas, and (c) strengthening Indo-Pacific alliances with Japan, Australia and the Philippines.

China’s contested maritime borders are additional points of friction. That includes overlapping territorial claims by Japan and Philippines -- U.S. treaty allies where Washington is bound to intervene in case of military clashes with China.

Heads of state firefighting

Japan’s quest for a stronger military presence in East Asia, and Tokyo’s apparent intention to get rid of its pacifist constitution are matters of serious concern for China. In fact, Beijing suspects that Japan is being prodded by the U.S. to proceed with a military buildup to help contain China.

Another important regional issue is the precarious armistice on the Korean Peninsula. U.S. and China have to narrow differences about this frozen conflict with a nuclear-armed belligerent in North Korea facing America’s largest overseas base with about 40,000 of military personnel.

The U.S.-Israeli war with Iran has opened another chokepoint for China trades. More than one-third of China’s oil imports is sourced from the Middle East, and about 90 percent of Iranian oil is exported to China. The U.S. apparently wants to maintain its blockade on Iran’s seaborne traffic until Teheran gives up all its enriched uranium and nuclear technology.

Washington’s reinstatement of the Monroe Doctrine -- which opposes any foreign interference in the Western Hemisphere – would also put China out of business in Latin America where it has extensive trade and investment operations. Last year, China’s total trade with Latin America came in at $549.0 billion. During the first quarter of this year, China’s Latin American business transactions increased 18.3 percent, with raw material imports soaring 30 percent.

The U.S.-China confrontation is currently flaring up in Panama as Washington wants to wrestle China’s control of that strategic waterway.

Last Tuesday, the U.S. Secretary of State Marco Rubio wrote in a social media post: “The sovereignty of our hemisphere is non-negotiable.”

After capturing Venezuela, blockading Cuba and threatening military action on Mexican cartels, the U.S. is sending a message that it means business about controlling the Western Hemisphere.

The U.S. and China must deal with flammable issues of strategic competition. Heads of state diplomacy has no solutions. But it will be the last ad hoc forum to deal with recurring crises of a terminally adversarial relationship.