US-China Deals May Offer Hollow Relief to Jittery Financial Markets

(MENAFN) Short-term trade agreements struck between Washington and Beijing may briefly calm jittery financial markets, but economists warn the underlying pressures threaten to inflict severe and enduring damage on third-party economies caught in the crossfire.

What began as a trade dispute between the world's two largest economies has metastasized into a sprawling, multidimensional strategic rivalry — one now shaped by Middle East instability, the scramble for critical raw materials, and a ferocious contest over artificial intelligence supremacy. Supply chains are being redrawn in real time, and the rules-based global order is buckling under the strain.

President Donald Trump's high-profile visit to Beijing — the first by an American president since his own 2018 trip during his first term — was widely read as a signal of what analysts are calling "controlled systemic competition": intense rivalry carefully managed to stop short of direct confrontation. The delegation, which included prominent American tech executives, sought to pry open the Chinese market to Western payment systems and technology platforms. The limited agreements reached may dull risk perception in global markets, but experts caution the reprieve is superficial.

Arzu Al, a professor of international political economy at Marmara University, argued that energy has supplanted industrial manufacturing as the primary engine of geopolitical leverage. As the world's largest energy importer, China secures a formidable cost advantage by purchasing discounted oil from sanctioned states including Iran, Russia, and Venezuela.

"Beijing is lowering production costs and gaining a competitive edge through this method, and from Washington's point of view, the issue is more than the energy market, as its goal has more to do with slowing down China's long-term economic rise," she said.

Flashpoints along critical energy corridors — most notably the Strait of Hormuz — have thrown the energy dimension of the rivalry into sharp relief. Washington's drive to tighten sanctions on Iran, restrict access to Venezuelan oil, and increase pressure on maritime shipping lanes is widely seen as a deliberate attempt to sever China's alternative energy supply routes.

"Even if Beijing felt the pressure in the short term, it's aiming to balance it in the long term through strategic oil reserves, renewable energy investments, and non-dollar payment systems," Al said. "The emerging scenario points to a larger process transcending classic sanction mechanisms."

Al described the broader US-China rivalry as a structural systemic conflict spanning technology, energy, finance, and supply chains — one steadily eroding the multilateral trading architecture built in the aftermath of the Second World War. She noted that China has cushioned the blow of declining US imports by redirecting production through ASEAN nations, Mexico, and other third-country hubs — a phenomenon she described as "trade diversion" that is compounding the complexity and cost of global supply networks.

"This process makes global production networks more complex and increases shipping costs and geopolitical risks," she said, warning that the World Trade Organization's rules-based framework has been fatally weakened as nations increasingly view economic ties through a national security lens rather than a free-market one — giving rise to friend-shoring, de-risking strategies, and sweeping tech embargoes.

"In the short term, these limited deals between the US and China could ease risk perception and provide some temporary relief to financial markets, but it is likely that there will be some serious pressures emerging on third-party economies in the medium and long term," she cautioned.

For the European Union, Al identified China's industrial overcapacity as the most pressing threat — a torrent of competitively priced electric vehicles, solar panels, and green technology products poised to flood European markets.

Emerging economies are navigating their own minefield. "The China Plus One enables countries like India, Vietnam, Indonesia, Mexico, and Brazil to attract new investments, but they're being forced to choose between the two blocs under the US-China competition pressure," Al said.

The trajectory, she warned, points toward a fundamentally different global order. "The Global South is facing both economic opportunities and the risk of secondary sanctions and this is leading the world economy away from single-polar globalization and to a new economic order that's more fragmented, bloc-based, and shaped by geopolitical risks," she added.

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